If a firm has $6.5 million in debt, $27.8 million in equity, a tax rate of...

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If a firm has $6.5 million in debt, $27.8 million in equity, a tax rate of...

If a firm has $6.5 million in debt, $27.8 million in equity, a tax rate of 35%, and pays 7% interest on debt, what is the firm's PV of the interest tax shields?

a. $202200

b. $327200

c. $8.5 million

d. $2.275 million

e. $418910

business finance

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Answer 1

Answer #1

d. $2.275 million

PV interest tax shields = TcD = 0.35($6.5m) = $2.275m

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Answer 2

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