A Firm Issues a $100 Million Bond with a Coupon

question 60

Multiple Choice

A firm issues a $100 million bond with a coupon rate of 8%. If the firm pays taxes at the marginal rate of 38%, what is the present value of the tax savings on the debt, assuming the
Debt is perpetual?

• A)$5,333,333
• B)$38,000,000
• C)$62,000,000
• D)$3,040,000

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Definitions:

Public System

A structured organization or network managed or funded by the government that provides goods or services to the public.

Rights and Duties

The legal, ethical, and moral entitlements individuals possess and the obligations they are bound to perform.

Institution

An established organization or foundation, often societal or public, created for a particular purpose, such as education, government, or religion.

Morality

The principles concerning the distinction between right and wrong or good and bad behavior.