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LCMS Industries has $70 million in debt outstanding.The firm will pay only interest on this debt (the debt is perpetual).LCMS' corporate tax rate is 21% and the firm pays a rate of 8% interest on its debt.
-The present value of LCMS' interest tax shield is closest to:

Question

Quizplus · Accepted Answer

The present value of the interest tax shield can be calculated using the formula PVITS = DTc/rd where D is the amount of debt, Tc is the corporate tax rate, and rd is the pre-tax cost of debt.

Substituting the given values, we get:
PVITS = 70,000,000 x 0.21 / 0.08
PVITS = $14,700,000

Therefore, the present value of LCMS' interest tax shield is closest to $14.7 million.

Use the Information for the Question(s)below