Arnell Industries has $60 million in permanent debt outstanding. The firm will pay interest only on...
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Arnell Industries has $60 million in permanent debt outstanding. The firm will pay interest only on this debt. Arnell's marginal tax rate is expected to be 25% for the foreseeable future. a. Suppose Arnell pays interest of 7% 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 the interest rate on the debt were 9%. What is the present value of the interest tax shield in this case? Arnell Industries has $60 million in permanent debt outstanding. The firm will pay interest only on this debt. Arnell's marginal tax rate is expected to be 25% for the foreseeable future. a. Suppose Arnell pays interest of 7% 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 the interest rate on the debt were 9%. What is the present value of the interest tax shield in this case?
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a To calculate the annual interest tax shield we need to multiply the amount of debt outstanding by ... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Posted Date:
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