Suppose a firm expects to have $50,000,000 in free cash flow and $1,000,000 in interest expenses...
Suppose a firm expects to have $50,000,000 in free cash flow and $1,000,000 in interest expenses this year. If the firm's WACC is 12% and it's corporate tax rate is 35%, what is the expected value of the tax shield this year?
Select one:
a. $17,500,000
b. $6,000,000
c. $44,642,587
d. $350,000
Homework Answers
Option d
Tax shield is an allowable deduction from taxable income which lowers the tax liability. Hence expected value of tax shield = Tax rate*Interest
= 35%*1000000 = $350000
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