What Is the Present Value of the Tax Shield for the Following

question 108

Multiple Choice

What is the present value of the tax shield for the following project? The initial investment is $300,000.The project will last for 6 years, at which time the asset will be sold for $90,000.The asset will be depreciated on a declining balance basis at a rate of 20 percent.The firm's marginal tax rate is 40 percent.The firm's required rate of return is 8 percent.

• A)16,204.36
• B)66,335.32
• C)82,539.68
• D)98,744.04

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Definitions:

Common Stock Subscribed

Common stock subscribed refers to shares that investors have committed to purchase but have not yet been issued by the company.

Par Value

The nominal or face value of a bond, stock, or coupon as stated by the issuer.

Preferred Stock

A class of ownership in a corporation with a specified dividend that must be paid out before dividends to common stockholders.

Common Stock

A type of equity ownership in a corporation, representing a claim on a portion of the profits and assets.