Question
Asked Nov 7, 2019
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juanita's steak house has 12,000 of debt outstanding that is selling at par and has a coupon rate of 8%. the tax rate is 34%. what is the present value of the tax shield?

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Expert Answer

Step 1

Computation of PV of the tax shield:

Hence, the present value of the tax shield is $4,080.

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A B Amount 12,000 8% 1 Particulars Outstanding debt 3 Coupon rate 4 Rate of tax 5 Interest payment 34% 960 6 Tax shield 326.4 7 Present value 4080

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