If a firm borrows $50 million for one year at an interest rate of 9 percent, what is the present value of the interest tax shield? Assume a 21 percent marginal corporate tax rate.
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If a firm borrows $50 million for one year at an interest rate of 9 percent, what is the present value of the interest tax shield? Assume a 21 percent marginal corporate tax rate.
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- Suppose a firm has $10 million in debt that it expects to hold in perpetuity. It the interest rate is 7 percent and the corporate tax rate is 35 percent, what is the value of the interest tax shield?Company B currently has $25 million in debt outstanding. In addition to 9.0% interest, it plans to repay 6% of the remaining balance each year. If Company B has a marginal corporate tax rate of 38%, and if the interest tax shields have the same risk as the loan, what is the present value of the interest tax shield from the debt?Ivanhoe Corporation has $310 million of debt outstanding at an interest rate of 9 percent. What is the dollar value of the tax shield on that debt, just for this year, if Ivanhoe is subject to a 35 percent marginal tax rate?
- A firm incurs $70,000 in interest expenses each year. If the tax rate of the firm is 30%, what is the effective after-tax interest rate expense for the firm?The firm incurs $70,000 in interest expenses each year. If the tax rate of the firm is 30%m what is the effective after-tax interst rate expense for the firm?LEX Corporation has $350 million of debt outstanding at an interest rate of 8 percent. What is the dollar value of the tax shield on that debt, just for this year, if LEX is subject to a 35 percent marginal tax rate? (Enter amount in dollars.) Value of tax shield $enter the dollar value of the tax shield
- One of the advantages of borrowing is that interest is deductible for income tax purposes.a. If a company pays 8 percent interest to borrow $500,000, but is in an income tax bracket thatrequires it to pay 40 percent income tax, what is the actual net-of-tax interest cost that thecompany incurs?b. What is the effective interest rate that is paid by the company?PMF, Inc., can deduct interest expenses next year up to 30% of EBIT. This limit is equally likely to be $15 million, $21 million, or $27 million. Its corporate tax rate is 35%, and investors pay a 20% tax rate on income from equity and a 35% tax rate on interest income. What is the effective tax advantage of debt if PMF has interest expenses of $12 million this coming year? (Round to two decimalplaces.) What is the effective tax advantage of debt for interest expenses in excess of $27 million? (Ignore carryforwards) (Round to two decimalplaces.) What is the expected effective tax advantage of debt for interest expenses between $15 million and $21 million? (Ignore carryforwards) (Round to two decimalplaces.) What level of interest expense provides PMF with the greatest tax benefit? (Round to two decimalplaces.)A company expects EBIT of 200000 every year into perpetuity. The firm currently has no debt, but it can borrow at 10% per annum. The company's cost of equity is 25% and the company is subject to a corporate tax rat of 35%. If the company borrows 200,000 and uses the proceeds to repurchase equity, the value of the company would be:
- In recent years, Haverhill Corporation has averaged net income of $10 million per year on net sales of $100 million per year. It currently has no long-term debt, but is considering a debt issue of $7.5 million. The interest rate on the debt would be 5 percent. Haverhill currently faces an effective tax rate of 45 percent. What would be Haverhill’s annual interest tax shield if it goes through with the debt issuance?Arnell Industries has 5.5 million in permanent debt outstanding. The firm will pay interest only on this debt. Arnell's marginal tax rate is expected to be 40% for the foreseeable future. a. Suppose Arnell pays interest of 9% per year on its debt. What is its annual interest tax shield? b. What is the present value of the interest tax shield, assuming its risk is the same as the loan? c. Suppose instead the interest rate on the debt were 7%. What is the present value of the interest tax shield in this case?Your firm currently has $80 million in debt outstanding with a 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? (Round to two decimal places.) P15-10 Rogot Instruments makes fine violins and cellos. It has $1.2 million in debt outstanding, equity valued at $2.7 million and pays corporate income tax at rate 21%. Its cost of equity is 11% and its cost of debt is 8%. What is Rogot's pretax WACC? (Round to two decimalplaces.) What is Rogot's (effective after-tax) WACC? (Round to two decimalplaces.)