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    Present value of the interest tax shields from the debt

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    Your firm currently has $100 million in debt outstanding with a 10% interest rate. The terms of the loan require the firm to repay $25 million of the balance each year. Suppose that the marginal corporate tax rate is 40%, and that the interest tax shields have the same risk as the loan.

    What is the present value of the interest tax shields from this debt?

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    https://brainmass.com/business/interest-rates/present-value-of-the-interest-tax-shields-from-the-debt-284806

    Solution Preview

    The debt will last for 4 years since we are repaying $25 million each year. We calculate the interest tax shield for each year and discount by the cost of debt which is 10% to find ...

    Solution Summary

    The solution explains how to calculate the present value of the interest tax shields from the debt

    $2.19

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