China Importers has $267,000 of debt outstanding that is selling at par and has a coupon rate of 9.5%. The tax rate is 35%. What is the present value of the tax shield?
A) $8,878
B) $16,487
C) $93,450
D) $148,020
E) $173,550

Question

Quizplus · Accepted Answer

The present value of the tax shield can be calculated using the formula: Tax Shield = Debt * Tax Rate. Therefore, the tax shield for China Importers is $267,000 * 35% = $93,450.

China Importers Has $267,000 of Debt Outstanding That Is Selling