The present value of a perpetual tax shield increases as the firm's tax rate _____ and the amount of principal _____.

Question

Quizplus · Accepted Answer

The present value of a perpetual tax shield is calculated as the tax shield amount divided by the discount rate minus the tax rate. As the tax rate increases, the tax shield amount also increases, thereby increasing the present value of the perpetual tax shield. Additionally, as the amount of principal increases, the tax shield amount also increases, leading to a further increase in the present value of the perpetual tax shield.

The Present Value of a Perpetual Tax Shield Increases as the Firm's