If a Firm Permanently Borrows $50 Million at an Interest

question 14

Multiple Choice

If a firm permanently borrows $50 million at an interest rate of 10%,what is the present value of the interest tax shield? Assume a 30% marginal corporate tax rate.

• A)$50.0 million
• B)$25.0 million
• C)$15.0 million
• D)$1.5 million

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Definitions:

Tax Benefits

are reductions in tax obligations, given to encourage certain activities or investments, such as deductions, exemptions, or credits.

Start-Up Companies

New businesses that are in the initial stages of operation, often characterized by innovative products or services and high growth potential.

Growth Increase

An upward trend in the expansion of an economy or business, indicated by rising output, sales, or other success metrics.

Macroeconomics

The branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets.