CourseLover

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Category > Accounting Posted 13 Dec 2017 My Price 10.00

$10 million in debt (at par).

Arnell Industries has just issued $10 million in debt (at par). The firm will pay interest only on this debt. Arnell’s marginal tax rate is expected to be 35% for the foreseeable future.

a. Suppose Arnell pays interest of 6% per year on its debt. What is its annual interest tax

shield?

b. What is the present value of the interest tax shield, assuming its risk is the same as the loan?

c. Suppose instead that the interest rate on the debt is 5%. What is the present value of the

interest tax shield in this case?

Answers

CourseLover
(12)
Status NEW Posted 13 Dec 2017 07:12 AM My Price 10.00

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