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

question 46

Multiple Choice

What is the present value of the tax shield to a firm that has total assets of $80 million and a net worth of $55 million, if the average interest rate on perpetual debt is 8.5%, the average return on equity is 14%, and the marginal tax rate is 35%?

• A) $8.75 million
• B) $12.25 million
• C) $0.85 million
• D) $0.744 million