Your firm currently has $ 104 million in debt outstanding with a nbsp 7 % interest...

Your firm currently has $ 104 million in debt outstanding with a nbsp 7 % interest rate. The terms of the loan require it to repay $ 26 million of the balance each year. Suppose 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 tax shields from this debt?

Expert Solution

Solution :

The Present value of the interest tax shield in Year 1 = $ 2,721,495.33

The Present value of the interest tax shield in Year 2 = $ 1,907,590.18

The Present value of the interest tax shield in Year 3 = $ 1,188,529.71

The Present value of the interest tax shield in Year 4 = $ 555,387.71

The total of the present values of the Interest tax shield from Year 1 to Year 4 = $ 6,373,002.93

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

jeff jeffy answered 1 year ago

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