If a Firm Borrows $50 Million for One Year at an Interest

question 49

Multiple Choice

If a firm borrows $50 million for one year at an interest rate of 10 percent, what is the present value of the interest tax shield? Assume a 21 percent marginal corporate tax rate.

• A)$0.95 million
• B)$1.50 million
• C)$1.00 million
• D)$4.55 million

---

Definitions:

Chapter 7

A bankruptcy process outlined in the U.S. Bankruptcy Code allowing individuals or businesses to discharge their debts by liquidating their assets.

Bankruptcy Code

The Bankruptcy Code is the federal law governing bankruptcy proceedings in the United States, providing for various forms of debt relief for individuals and organizations.

Educational Loans

Financial loans provided to students to help cover the cost of post-secondary education, typically to be repaid after graduation.

Nondischargeable Debts

Debts that cannot be eliminated through bankruptcy, often including certain taxes, child support, and student loans.