Suppose a project financed via an issue of debt requires six annual interest payments of $18 million each year. If the tax rate is 35% and the cost of debt is 8%, what is the value of the interest rate tax shield?
A) $23.30 million
B) $29.12 million
C) $34.95 million
D) $58.25 million

Question

Quizplus · Accepted Answer

B) Value of tax shield each year equals tax rate times the interest payment.
Compute the present value of annuity of payments calculated above.
Tax shield = 0.35 × $18 million = $6.3 million; 11ea84dc_f50e_ca24_9a63_c5a3f915c2b4_TB1316_00_TB1316_00

Suppose a Project Financed Via an Issue of Debt Requires