Use the Information for the Question(s) Below

question 3

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.
-Assuming that the risk is the same as the loan,the present value of LCMS' interest tax shield is closest to:

• A) $45.5 million
• B) $20.0 million
• C) $24.5 million
• D) $35.0 million

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Definitions:

Negative Income Tax

A fiscal mechanism where individuals earning below a certain threshold receive supplemental pay from the government instead of paying taxes.

Subsidy

A financial contribution provided by the government or another body to support an industry, business, or individual.

Earned Income Tax Credit

A refundable tax credit for low- to moderate-income working individuals and families, aimed at reducing poverty and encouraging work.

Working Poor

Individuals who are employed but still live below the poverty line due to low wages and inadequate employment benefits.