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    WACC, Interest Tax Shield

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    23a.The after-tax weighted average cost of capital (WACC) is given by: (Corporate tax rate = TC)

    A. WACC = (rD)(D/V) + (rE)(E/V)
    B. WACC = (rD)(D/V) + [(rE)(E/V)/(1 - TC)]
    C. WACC = [(rD)(D/V) + (rE)(E/V)]/(1 - TC)
    D. WACC = (rD)(1 - TC)(D/V) + (rE)(E/V)

    23b. If a firm borrows $50 million for one year at an interest rate of 9%, what is the present value of the interest tax shield? Assume a 30% tax rate.

    A. $50.00 million
    B. $17.50 million
    C. $1.445 million
    D. $1.239 million

    23c. If a firm permanently borrows $100 million at an interest rate of 8%, what is the present value of the interest tax shield? (Assume that the tax rate is 30%)

    A. $8.00 million
    B. $5. 6million
    C. $30 million
    D. $26.67 million
    E. None of the above

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    https://brainmass.com/economics/finance/wacc-interest-tax-shield-241441

    Solution Preview

    23a.The after-tax weighted average cost of capital (WACC) is given by: (Corporate tax rate = TC)

    A. WACC = (rD)(D/V) + (rE)(E/V)
    B. WACC = (rD)(D/V) + [(rE)(E/V)/(1 - TC)]
    C. WACC = [(rD)(D/V) + (rE)(E/V)]/(1 - TC)
    D. WACC = (rD)(1 - TC)(D/V) + ...

    Solution Summary

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