A Firm Issues Debt of $1 Million at an Interest

question 26

Multiple Choice

A firm issues debt of $1 million at an interest rate of 10%. The debt has a 10-year maturity, and the first interest payment is due next year. The principal repayment and the last interest
Payment will be made at the end of year 10. If the firm is in the 40% tax bracket and the
Appropriate discount rate is 10%, what is the present value of the tax savings? Round your
Answer to the nearest dollar.

• A)$245,783
• B)$368,674
• C)$363,636
• D)$545,455

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Definitions:

Merchandise Inventory

Goods that a retail or wholesale company intends to sell to customers, recorded as a current asset on the balance sheet.

Classified Balance Sheet

A financial statement that groups assets, liabilities, and equity into categories to provide meaningful information to users.

Perpetual Inventory System

A perpetual inventory system continuously updates inventory records for each purchase and sale, providing a real-time view of inventory levels.

Revenue

The overall revenue generated from a company's core business activities, through selling products or services.