What is the present value of the tax savings

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Reference no: EM131241341

A $1 million construction project is expected to return $1.2 million in 1 year. Your company is in a 45% combined federal and state marginal income tax bracket.

(a) If you finance the project with cash, how much will you pay in taxes?

(b) If you finance the project with an $800,000 mortgage at an interest rate of 5%, how much will you pay in taxes?

(c) If the appropriate project interest rate is 8%, what is the present value of the tax savings from financing the project with a mortgage?

Reference no: EM131241341

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