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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- 9. If a firm borrows $50 million for one year at an interest rate of 9%, what is the present value of the interest tax shield? Assume a 30% tax rate. a) Compute the PV of interest tax shieldOne 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?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?A firm will report annual Net Income of $50 and depreciation expense of $20 forever in the future. With a tax rate of 30%, how much is the present value of all future “tax shields”? Assume r = 4%.Your firm currently has $96 million in debt outstanding with a 8% interest rate. The terms of the loan require the firm to repay $24 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? The present value of the interest tax shields is $ million. (Round to two decimal places.)
- Your firm currently has $64 million in debt outstanding with a 6% interest rate. The terms of the loan require it to repay $16 million of the balance each year. Suppose the marginal corporate tax rate is 30%, 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? The present value of the interest tax shields is $ million. (Round to two decimal places.)Suppose you sell a fixed asset for $90,000 when its book value is $95,000. If your company's marginal tax rate is 21 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?Q. Emmar Industries borrows $800 million at an interest rate of 7.6%. Emmar 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?(b.) It expects to repay the debt at the end of 5 years?(c.) It expects to maintain a constant debt ratio once it borrows the $800 million and rassets =10%?
- Capital Computer Corporation takes out a $10,000 loan to finance the purchase of new physical capital. It must repay the loan in full with interest in one year. The interest rate is 10 percent and the applicable corporate tax rate is 30 percent. What is the present value savings from the deductibility of the interest payment from Capital Computer Corporation’s taxes? Please round your answer to the nearest dollar.Suppose you sell a fixed asset for $115,000 when it's book value is $135,000. If your company's marginal tax rate is 21%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?BBA Ltd has just issued $10 million in debt (at par or face value). The firm will pay interest only on this debt. BBA’s marginal tax rate is expected to be 30% for the foreseeable future. a) Suppose BBA pays interest of 6% per year on its debt. What is its annual interest tax shield? b) What is the present value of the interest tax shield, assuming the tax shield’s risk is the same as that of the loan? c) Suppose instead that the interest rate on the debt is 5%. What is the present value of the interest tax shield in this case? Ten years have passed since BBA issued $10 million in perpetual interest-only debt with a 6% annual coupon. Tax rates have remained the same at 30% but interest rates have dropped so BBA’s current cost of debt capital is 4%. d) What is BBA’s annual interest tax shield now? e) What is the present value of the interest tax shield now?