Question

In: Finance

Bay Transport Systems​ (BTS) currently has $50 million in debt outstanding. In addition to 9.0% ​interest

Bay Transport Systems​ (BTS) currently has $50 million in debt outstanding. In addition to 9.0% ​interest, it plans to repay 6% of the remaining balance each year. If BTS has a marginal corporate tax rate of 21%​, and if the interest tax shields have the same risk as the​ loan, what is the present value of the interest tax shield from the​ debt?

Solutions

Expert Solution

Given that,

BTS have currently = $50 million

interest = 9%

 

repay remaining balance = 6%

marginal corporate tax rate = 21%

present value=?

present value=?

interest payment=?

 

Interest payment = BTS current value ∗ interest ∗ marginal corporate tax rate

                                = 50,000,000×9.0×21

                                = 9,450,000,000

 

 

Here,

Due to decease that the remaining balance is -6%

 

Hence, after certain calculations the present value is $63,000,000,000.

Hence, after certain calculations the present value is $63,000,000,000.

Junaid answered 2 years ago
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