Solution-Impact of inflation on tax savings from interest

Impact of inflation on tax savings from interest deduction

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Reference no: EM131713138

Question: Assume that the cost of debt is fully indexed to the expected positive inflation rate so that the NPV of the loan and loan repayment, discounted by the cost of debt, is zero. What is the present value of the interest payments in the presence of inflation, relative to the case where the expected inflation rate is zero? Is it higher, lower or unchanged? What is the impact of inflation on the tax savings from the interest deduction?

Reference no: EM131713138

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Impact of inflation on tax savings from interest deduction

Reference no: EM131713138

Reference no: EM131713138

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