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

question 13

Multiple Choice

If a firm borrows $50 million for one year at an interest rate of 9 percent, what is the present value of the interest tax shield? Assume a 21 percent marginal corporate tax rate.

• A)$50.00 million
• B)$17.50 million
• C)$1.45 million
• D)$0.87 million

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Definitions:

Assembly Department

An Assembly Department is a section within a manufacturing facility where components are assembled into final products.

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.

Variable Costing

An accounting method that includes only variable production costs (materials, labor, and overhead) in product costs and treats fixed costs as period expenses.

Profit Reported

The financial gain disclosed by a business, typically over a specific period, after all expenses have been deducted from total revenues.