The interest tax shield provided by Omicron's new project in year 1 is closest to:
A)$3.00
B)$1.05
C)$50.25
D)$17.60

Question

Quizplus · Accepted Answer

B)r_wacc = 11ea7cce_3ca3_6671_928c_130162f31674_TB1626_11 r_E + 11ea7cce_3ca3_8d82_928c_757c394076b6_TB1626_11 r_D(1 - τ_c),where D = net debt = Debt - Cash r_wacc = 11ea7cce_3ca3_8d83_928c_8be6ef8f0d9f_TB1626_11 (.12)+ 11ea7cce_3ca3_8d84_928c_8d3f1d87d3b3_TB1626_11 (.06)(1 - .35)= .0876 11ea7cce_3ca3_b495_928c_dd1ced492f5a_TB1626_11 = 11ea7cce_3ca3_b496_928c_375a03dbc796_TB1626_11 + 11ea7cce_3ca3_b497_928c_7faa29e23164_TB1626_11 + 11ea7cce_3ca3_dba8_928c_81bade94ea1c_TB1626_11 = $125.69 D₀ = d × 11ea7cce_3ca3_dba9_928c_2dc55e12a232_TB1626_11 D₀ = 11ea7cce_3ca3_dbaa_928c_a3bf9139de4b_TB1626_11 ($125.69)= $50.28 So,Interest tax shield in year 1 = 50.28(.06)(.35)= 1.055880 or 1.06

The Interest Tax Shield Provided by Omicron's New Project in Year