Earnings before interest = $0.5 million, D = $1 million, cost of debt = 10%, and...
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Earnings before interest = $0.5 million, D = $1 million, cost of debt = 10%, and company tax rate = 30%. What is the present value of the tax saving on interest? |
A. $700 000
B. $300 000
C. $30 000
D. $70 000
Homework Answers
Interest = Debt amount*Interest rate
= 1000000*10% = $100000
Tax saving = tax rate*Interest = 30%*100000 = $30000
Since there is no discount rate and number of years mentioned,
PV of tax saving= $30000
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