If a firm permanently borrows $50 million at an interest rate of 10%, what is the present value of the interest tax shield? Assume a 30% tax rate.
A) $50.0 million
B) $25.0 million
C) $15.0 million
D) $1.5 million

Question

Quizplus · Accepted Answer

The present value of the interest tax shield is calculated as follows: PV = Tc * D where Tc is the tax rate and D is the amount of debt. In this case, PV = 0.30 * $50 million = $15 million. Therefore, choice C is the correct answer.

If a Firm Permanently Borrows $50 Million at an Interest