What is the present value of the interest tax shield

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Arnell Industries has $25 million in permanent debt outstanding. The firm will pay interest only on this debt. Arnell's marginal tax rate is expected to be 40% for the foreseeable future. a. Suppose Arnell pays interest of 10% 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 8%. What is the present value of the interest tax shield in this case?

a. Suppose Arnell pays interest of 10% per year on its debt. What is its annual interest tax shield?

If Arnell pays interest of 10% per year on its debt, the annual interest tax shield is $ million.

b. What is the present value of the interest tax shield, assuming its risk is the same as the loan?

The present value of the interest tax shield is $ million.

c. Suppose instead the interest rate on the debt were 8%. What is the present value of the interest tax shield in this case?

If instead the fair interest rate on the debt is 8%, the present value of the interest tax shield is $ million.

Reference no: EM131528507

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