Question

Establishment Industries borrows $870 million at an interest rate of 8.3%. Establishment will pay tax at an effective rate of 35%. What is the present value of interest tax shields if:

a. It expects to maintain this debt level into the far future? (Enter your answer in millions of dollars.)

b. It expects to repay the debt at the end of 6 years?  (Enter your answer in millions of dollars rounded to 2 decimal places.)

c. It expects to maintain a constant debt ratio once it borrows the $870 million and r_Assets = 10%? (Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 1 decimal place.)

Answer 1

a) Tax shield = 870 million * 8.3%

= 72.21 million

b) in millions

1	₹ 72.21
2	₹ 60.18
3	₹ 48.14
4	₹ 36.11
5	₹ 24.07
6	₹ 12.04