Suppose a Project Financed Via an Issue of Debt Requires

question 55

Multiple Choice

Suppose a project financed via an issue of debt requires six annual interest payments of $20 million each year.If the tax rate is 30% and the cost of debt is 8%,what is the value of the interest rate tax shield?

• A)$31.35 million
• B)$27.74 million
• C)$23.20 million
• D)$32.64 million
• E)$36 million

---

Definitions:

Contract Formality

Contract formality refers to the requisite legal formalities and procedures, such as written documentation or specific terms, necessary for a contract to be considered valid and enforceable.

Quasi Contract

A legal concept where courts impose a contract-like obligation on a party to prevent unjust enrichment, even though no real contract exists between the parties involved.

Oral Contract

An agreement between parties that is made through spoken words and is legally binding, although it may be difficult to prove.

Uniform Commercial Code

A comprehensive set of laws governing commercial transactions in the United States, intended to standardize legislation across states.