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

Question

Question

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

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

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

Add a comment

Answer 2

Similar Homework Help Questions

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
A firm has an ROE of 5%, a debt/equity ratio of 0.5, a tax rate of...

A firm has an ROE of 5%, a debt/equity ratio of 0.5, a tax rate of 35%, and pays an interest rate of 7% on its debt. What is its operating ROA? (Do not round intermediate calculations. Round your answer to 2 decimal places.) % ROA
Your firm currently has $ 104$ million in debt outstanding with an 8% interest rate. The...

Your firm currently has $ 104$ million in debt outstanding with an 8% interest rate. The terms of the loan require the firm to repay $ 26 million of the balance each year. Suppose that the marginal corporate tax rate is 21% and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt? The present value of the interest tax shields is _____ million. (Round...

Your firm currently has $84 million in debt outstanding with a 10% interest rate. The terms...

Your firm currently has $84 million in debt outstanding with a 10% interest rate. The terms of the loan require the firm to repay $21 million of the balance each year. Suppose that the marginal corporate tax rate is 21%, terest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt? The present value of the interest tax shields is $ million. (Round to two decimal places.)
Your firm currently has $ 52 million in debt outstanding with a 6 % interest rate....

Your firm currently has $ 52 million in debt outstanding with a 6 % interest rate. The terms of the loan require it to repay $ 13 million of the balance each year. Suppose the marginal corporate tax rate is 30 %, and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt?
Your firm currently has $ 104 million in debt outstanding with a 10 % interest rate....

Your firm currently has $ 104 million in debt outstanding with a 10 % interest rate. The terms of the loan require it to repay $ 26 million of the balance each year. Suppose the marginal corporate tax rate is 40 %, and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt?

Your firm currently has 88 million in debt outstanding with a 9% interest rate, The terms...

Your firm currently has 88 million in debt outstanding with a 9% interest rate, The terms of the loan require the firm to repay 22 million of the balance each year. Suppose that the marginal corporate tax rate is 40% and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt. The present value of this interest tax shield is
Your firm currently has $ 80 million in debt outstanding with an 8 % interest rate. The terms of the loan require the fi...

Your firm currently has $ 80 million in debt outstanding with an 8 % interest rate. The terms of the loan require the firm to repay $ 20 million of the balance each year. Suppose that the marginal corporate tax rate is 21%, and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt?
A firm has $50 million in equity and $20 million of debt, it pays dividends of...

A firm has $50 million in equity and $20 million of debt, it pays dividends of 30% of net income, and has a net income of $10 million. What is the firm's internal growth rate? O A. 9% OB. 11% O c. 12% OD. 10%

A firm has an ROE of 3.9%, a debt-to-equity ratio of 0.8, and a tax rate...

A firm has an ROE of 3.9%, a debt-to-equity ratio of 0.8, and a tax rate of 40% and pays an interest rate of 7% on its debt. What is its operating ROA? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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

Homework Answers

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

Post as a guest

Earn Coins