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
Interest payment = $6,500,000 * 7%
Interest payment = $455,000
Interest tax shield = $455,000 * 0.35 = $159,250.
Present value of interest tax shields = $159,250 / 0.07
Present value of interest tax shields = $2,275,000
or 2.275 million
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
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