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Present value of interest tax shields

1. Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. The marginal tax rate is T^c = .35.
a. A $1000, one-year loan at 8%.
b. A five-year loan of $1000 at 8%. Assume no principal is repaid until maturity.
c. A $1000 perpetuity at 7%.

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1. Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. The marginal tax rate is T^c = .35.
    a. A $1000, one-year loan at 8%.
    b. A five-year loan of $1000 at 8%. Assume no principal is repaid until maturity.
    c. A $1000 perperuity at 7%.

Present value of tax shield is calculated by discounting the cash shields at the interest rate
Tax shield = Tax rate x ...

Solution Summary

Computes the present value of interest tax shields generated by three debt issues.

$2.19