A Firm Has Interest Expense of $2500 Each Year for Ten

question 82

Multiple Choice

A firm has interest expense of $2500 each year for ten years.If the tax rate is 30% and the discount rate is 7%,compute the value of the interest rate tax shield.

• A)$5,744
• B)$5918
• C)$5268
• D)$6987
• E)$7212

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Definitions:

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return, used in assessing investment opportunities.

Compounded Annually

Describes how interest on an investment or loan is calculated once a year, with each year's interest based on the principal plus any previously earned interest.

Return

The gain or loss on an investment over a specified period, expressed as a percentage increase over the original investment cost.

Invest

Allocating resources, usually financial, with the expectation of generating an income or profit.