What is the value of the interest rate tax shield

Assignment Help Financial Management

Reference no: EM131346635

1. Suppose a project financed via an issue of debt requires five annual interest payments of $12 million each year. If the tax rate is 35% and the cost of debt is 5%, what is the value of the interest rate tax shield?

A) $21.82 million

B) $18.18 million

C) $36.37 million

D) 14.55 million

2. A firm requires an investment of $30,000 and borrows $20,000 at 9%. If the return on equity is 15% and the tax rate is 30%, what is the firm's WACC?

A) 9.20%

B) 11.04%

C) 18.40%

D) 7.36%

Reference no: EM131346635

Questions Cloud

Firm does not pay dividend but repurchases stock : Suppose a firm does not pay a dividend but repurchases stock using $28 million of cash, the market value of the firm decreases by ________. A firm has $300 million of assets that includes $40 million of cash and 10 million shares outstanding. If the ..

Find the angular velocity of the tube at the instant : Find the angular velocity of the tube at the instant when the rod slips out of the tube

Why were people concerned about national in the 1960s : Why were people concerned about national or world issues in the 1960s?

Identify the methods by which toxicants enter the body : Identify the methods by which toxicants enter the body. Provide a brief description and at least two examples of each. List and describe the factors that affect the distribution of a toxicant in the body.

What is the value of the interest rate tax shield : Suppose a project financed via an issue of debt requires five annual interest payments of $12 million each year. If the tax rate is 35% and the cost of debt is 5%, what is the value of the interest rate tax shield? A firm requires an investment of $3..

Write a short paper about the history debate : History is about interpretation and debate. You will have an opportunity to develop your own interpretation about a historical topic using primary evidence and secondary sources (the works of other historians and scholars.) You are responsible f..

Specific reasons for failure of communication : Discuss a current news event that illustrates unclear, ambiguous or inaccurate financial data communicated to a firm’s stakeholders. Discuss the consequences and specific reasons for this failure of communication. Analyze the situation and determine ..

Perform a critical review of the given niosh publication : Perform a critical review of the following NIOSH Publication. Summary of your own opinions and comments on what you learned from the publication.

Identical assets that generate identical cash flows : A firm requires an investment of $40,000 and borrows $20,000 at 9%. If the return on equity is 19%, what is the firm's pretax WACC? Consider two firms, Firm X and Firm Y, that have identical assets that generate identical cash flows. Firm Y is an all..

User Account

All Pages