Establishment Industries borrows $800 million at an interest rate of 7.6%. Establishment will pay tax at an
Question:
Establishment Industries borrows $800 million at an interest rate of 7.6%. Establishment will pay tax at an effective rate of 21%. What is the present value of interest tax shields if:
a. It expects to maintain this debt level into the far future?
b. It expects to repay the debt at the end of 5 years?
c. It expects to maintain a constant debt ratio once it borrows the $800 million and rassets = 10%?
Step by Step Answer:
a PV tax shield800 mil021...View the full answer
Fundamentals of Corporate Finance
ISBN: 978-1260566093
10th edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
Related Video
Interest, debt, finance, and capital markets are all important concepts in the world of economics and business. Interest is the cost of borrowing money, and it is typically expressed as a percentage of the amount borrowed. Debt is the money that is borrowed, and it has to be repaid with interest. Finance is the study of how individuals, companies, and organizations manage their money and investments. Capital markets are the places where companies and governments can raise money by selling stocks and bonds to investors. These markets play an important role in the overall economy by helping to fund investment and growth.
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