# WACC, Interest Tax Shield

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

MCQs on WACC, Interest Tax Shield have been answered.