PMF, Inc., is equally likely to have EBIT this coming year of $10 million, $15 million, or $20 million. It's corporate tax rate is 40%, and investors pay a 10% tax rate on income from equity and a 40% tax rate on interest income. What is the interest tax shield if PMF has interest expenses of $5 million this coming year? A.$2 million B.$4 million C.$0.3 million D.$2.25 million

The interest tax shield represents the tax savings resulting from a company's tax-deductible…

Answered: PMF, Inc., is equally likely to have…

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter34: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

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PMF, Inc., is equally likely to have EBIT this coming year of $10 million, $15 million, or $20 million. It's corporate tax rate is 40%, and investors pay a 10% tax rate on income from equity and a 40% tax rate on interest income. What is the interest tax shield if PMF has interest expenses of $5 million this coming year?

A.

$2 million

B.

$4 million

C.

$0.3 million

D.

$2.25 million

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