Question: Quantum Design, Inc. is considering adding debt to their capital structure. Currently, the value of Quantum Designs is $3,000,000 and they are all-equity financed. The

Quantum Design, Inc. is considering adding debt to their capital structure. Currently, the value of Quantum Designs is $3,000,000 and they are all-equity financed. The CFO would like to issue debt; specifically, $1,000,000 worth of bonds. This debt is permanent. The interest on the bonds would be set at 5%. The CFO estimated that this is the appropriate required rate of return demanded by bondholders of similar debt issues. Quantum Designs pays taxes at a rate of 30%. Calculate the annual interest tax shield.

15,000

50,000

115,826

300,000

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