Suppose a project financed via an issue of debt requires five annual interest payments of $...

Suppose a project financed via an issue of debt requires five annual interest payments of $ 22 million each year. If the tax rate is 35% and the cost of debt is 5%, what is the value of the interest rate tax shield?

A.$ 26.7 million

B.$ 66.7 million

C.$ 33.3 million

D. $ 40.0 million

Expert Solution

Solution :

The value of the interest rate tax shield = $ 33.3 million

The solution is Option C. $ 33.3 million

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

jeff jeffy answered 8 months ago

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