In Order to Calculate the Tax Shield of Interest Payments

question 25

Multiple Choice

In order to calculate the tax shield of interest payments for a corporation, always use the

• A)average corporate tax rate.
• B)marginal corporate tax rate.
• C)marginal rate on personal income tax.
• D)average corporate tax rate and marginal rate on personal income tax.

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Definitions:

Net Present Value

A process that evaluates how the worth of a dollar now compares to its worth in the future, factoring in both inflation and investment returns.

Discount Rate

This is the rate of interest utilized in discounted cash flow analysis to calculate the current worth of future cash flows.

Investment

The process of distributing assets, typically funds, with the aim of earning a return or profit.

Operational Ambiguity

The uncertainty or lack of clarity in the operational aspects of a business, which can arise from complex or unclear procedures, objectives, or roles.