Reena Industries has $138,000 of debt outstanding that is selling at par and has a coupon rate of 7 percent.If the tax rate is 21 percent,what is the present value of the tax shield on debt?
A)$28,412
B)$31,010
C)$28,980
D)$3,284
E)$2,029

Question

Quizplus · Accepted Answer

The present value of the tax shield on debt is calculated as:

PV of tax shield = Tax rate x Debt outstanding

PV of tax shield = 0.21 x $138,000 = $28,980

Therefore, the correct answer is C.

Reena Industries Has $138,000 of Debt Outstanding That Is Selling