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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

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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