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Annual percentages and interest is annual

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Suppose Shonky Airlines Ltd (SA) seeks a bridging loan for three years. The loan is for $120. The interest rate on the debt is 11.4%. This is above the firm's normal cost of debt for an unsecured loan, which is 8.1%, and which SA expects to be the cost of debt going forward. What is the present value of the debt tax shield if the tax rate is 16%.

Assume: interest rates are expressed as annual percentages and interest is annual.

Select one:

a. 2.024792

b. 5.630587

c. None of these options is correct

d. 3.897865

Please explain why. Thank you

Reference no: EM132509202

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