If a firm has debt and pays taxes, the present value of the tax shield is the amount of debt outstanding times the tax rate.

Question

Quizplus · Accepted Answer

This statement is true. The present value of the tax shield for a firm with debt and taxes is calculated by multiplying the amount of debt outstanding by the tax rate. The tax shield is created because interest payments on debt are tax-deductible, which reduces the amount of taxable income and thus lowers the amount of taxes paid by the firm.

If a Firm Has Debt and Pays Taxes, the Present