Your firm currently has $ 116 million in debt outstanding with a 9 % interest rate....

Your firm currently has $ 116 million in debt outstanding with a 9 % interest rate. The terms of the loan require the firm to repay $ 29 million of the balance each year. Suppose that the marginal corporate tax rate is 35 % , and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt?

Expert Solution

Solution :

The present value of the interest tax shields from this debt = $ 7,716,843.25

= $ 7,716,843 ( when rounded off to the nearest whole number )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 8 months ago

Your firm currently has $116 million in debt outstanding with a 9% interest rate. The terms...

Your firm currently has $116 million in debt outstanding with a 9% interest rate. The terms of the loan require the firm to pay $29 million of the balance each year. Suppose that the marginal corporate tax rate is 40% and that the interest tax shields have the same risk as the loan. What is the present value of the interest shields from this debt? *****please show work*****

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