Question

if a firm borrows $60 million for one year at an interest rate of 10 percent, what is the present value of the interest tax shield? assume a 21 percent marginal corporate tax rate.\

Answer 1

Firm Borrows : $60 million

Time period : 1 yr

Interest rate : 10%

Corporate tax = 21%

Interest tax shield = (0.21)*(60) = $12.6 million