If a Firm Permanently Borrows $50 Million at an Interest

question 68

Multiple Choice

If a firm permanently borrows $50 million at an interest rate of 10%, what is the present value of the interest tax shield? Assume a 30% tax rate.

• A) $50.0 million
• B) $25.0 million
• C) $15.0 million
• D) $1.5 million

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Definitions:

Illusion

A distortion of the senses, revealing how the brain normally organizes and interprets sensory stimulation.

Uncontrollable Events

Situations or occurrences that individuals cannot influence or dictate, often leading to feelings of helplessness.

Correlated

When two or more variables have a measurable relationship or association with each other, often investigated through statistical analysis.

Positive Correlation

A relationship between two variables where they both move in the same direction, meaning as one variable increases, the other also increases.