What Is the Present Value of the Tax Shield to a Firm

question 69

Multiple Choice

What is the present value of the tax shield to a firm that has a capital structure consisting of $100 million of perpetual debt and $180 million of equity, if the average interest rate on debt is 9%, the return on equity is 13%, and the marginal tax rate is 40%?

• A) $72 million
• B) $40 million
• C) $60 million
• D) $3.6 million

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Definitions:

Head Node

The first node in a linked list or tree data structure.

Object

In programming, an object is an instance of a class that contains both data, in the form of fields, and methods, which are functions specific to the class.

NullPointerException

An exception thrown in Java when an application attempts to use an object reference that has the null value, indicating that no object has been assigned to the reference.

Preorder Traversal

A way of traversing a tree data structure where each node is visited before its child nodes in a top-down, left-right manner.