Use the Information for the Question(s)below

question 75

Multiple Choice

Use the information for the question(s) below.
LCMS Industries has $70 million in debt outstanding.The firm will pay only interest on this debt (the debt is perpetual) .LCMS' corporate tax rate is 21% and the firm pays a rate of 8% interest on its debt.
-Assuming that the risk of the tax shield is only 6% even though the debt pays 8%,then the present value of LCMS' interest tax shield is closest to:

• A)$24.5 million.
• B)$18 million.
• C)$19.6 million.
• D)$20.0 million.

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Definitions:

Incremental Manufacturing Cost

The additional cost incurred by producing one more unit of a product.

Production Increase

An uptick in the amount of products manufactured by a company over a set period.

Contribution Margin

The amount of revenue from sales that exceeds the variable costs associated with producing a good or service.

Relevant Range

The extent of activity or volume over which the specific cost assumptions and behaviors are considered valid.