If a firm permanently borrows $100 million at an interest rate of 8%, what is the present value of the interest tax shield? (Assume that the tax rate is 30%)
A) $8.00 million
B) $5.6 million
C) $30 million
D) $26.67 million
E) None of the above
PV of interest tax shield = (0.3)(100) = $30 million

Question

Quizplus · Accepted Answer

The present value of the interest tax shield is calculated as the tax rate multiplied by the amount borrowed, which is $30 million.

If a Firm Permanently Borrows $100 Million at an Interest