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Your firm currently has $80 million in debt outstanding with a 9% 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?

Respuesta :

Answer:

Present value  = $ 3,193,176.52

Explanation:

The computation of the present value of interest tax shield is shown in the attachment that represents the formula sheet and the final sheet

Given that

Current amount = $80 million

Interest rate = 9%

Repay amount = $20 million

Corporate tax rate = 21%

based on the above information,

the present value of the tax shield is $3,193,176.52

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