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