Use the Information for the Question(s)below

question 30

Multiple Choice

Use the information for the question(s) below.
LCMS Industries has $70 million in debt outstanding.The firm will pay only interest on this debt (the debt is perpetual) .LCMS' marginal tax rate is 35% and the firm pays a rate of 8% interest on its debt.
-LCMS' annual interest tax shield is closest to:

• A)$2.8 million
• B)$2.0 million
• C)$3.6 million
• D)$5.6 million

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Definitions:

Anticipated Future Earnings

Projected profits or income that a company expects to earn in future periods, often used in valuations.

Common Stock

A type of equity security that represents ownership in a corporation, giving holders a share in the company's profits and voting rights.

Par Value

A nominal value assigned to a share of stock or a bond by the issuing company, often used in accounting.

Liability Recorded

The process of documenting a company's obligations or debts in its financial records.