Markum Enterprises is considering permanently adding $100 million of debt to its capital structure. Markum’s corporate tax rate is 35%.
a. Absent personal taxes, what is the value of the interest tax shield from the new debt?
b. If investors pay a tax rate of 40% on interest income, and a tax rate of 20% on income from dividends and capital gains, what is the value of the interest tax shield from the new debt?