Juanita's Steak House Has $14,000 of Debt Outstanding That Is

question 48

Multiple Choice

Juanita's Steak House has $14,000 of debt outstanding that is selling at par and has a coupon rate of 8%.The tax rate is 34%.What is the present value of the tax shield?

• A)$2,823
• B)$2,887
• C)$4,080
• D)$4,500
• E)$4,760

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Definitions:

Bond Prices

Bond prices are the market value of bonds, which fluctuate based on interest rates, the bond's credit rating, and other factors.

Market Interest Rate

The prevailing rate of interest available in the marketplace on debts of similar risk and maturity.

Contractual Interest Rate

The interest rate explicitly stated in a loan agreement or bond indenture that the borrower must pay to the lender.

Sale of Bonds

The process of issuing bonds to investors as a form of borrowing money with the promise to pay back with interest.