Question

If a firm permanently borrows $100 million at an interest rate of 8 percent, what is the present value of the interest tax shield? (Assume that the marginal corporate tax rate is 30 percent.)​

Answer 1

The present value of the interest tax shield = 30% x $100 million = $30 million.

Step-by-step explanation:

The interest tax shield refers to the amount of money that a business can deduct form income taxes due to interest expenses. A business can deduct the whole amount of money it spends as interest expenses. This deductions reduce the total costs of borrowing money.