Blue, Inc. is considering borrowing $100,000 at 5%. Its tax rate is 35%. What is the...
Blue, Inc. is considering borrowing $100,000 at 5%. Its tax rate is 35%. What is the present value of the interest tax shield if the debt is permanent? (do not use the $ sign when entering your answer).
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Calculation of present value of interest tax shield:
Tax rate= 35%
Value of borrowing= 100000
Interest= 100000*0.05= 5000
Annual tax shield= Interest * tax rate= 5000*0.35= 1750
Present value of interest tax shield= annual tax shield/interest rate
Present value of interest tax shield= 1750/0.05= 35000
Present value of interest tax shield is 35000
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