In the Year Just Past (Year 1)Kaos Corp

question 4

Multiple Choice

In the year just past (Year 1) Kaos Corp.had no debt.Today is January 1 of Year 2.Kaos is considering a plan to sell bonds worth $25B and use the proceeds to repurchase 2.5B shares (on the open market at $10/share) .If Kaos maintains this new level of debt in perpetuity,then what is the present value of the resulting interest tax shields? Assume that the debt is sold immediately,that the bonds are a perpetuity,and that interest is paid at the end of each year.Assume that the coupon rate on the bonds is 6% and that the tax rate is 15%.

• A) $0.23B
• B) $3.75B
• C) $6.0B
• D) $21.25B
• E) $25B

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Definitions:

Exocrine Glands

Glands that release their secretions through ducts onto an epithelial surface, such as sweat, salivary, and digestive glands.

Protects the Body

A generalized term for biological systems or behaviors that defend the organism against disease, infection, or injury.

Serous Membrane

An epithelial membrane that lines a body cavity that does not open to the outside of the body.

Pleural Membranes

Thin layers of tissue that envelop the lungs and line the interior of the chest cavity, facilitating lung movement during breathing.