Use the Information for the Question(s) Below

question 19

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 of the tax shield is only 6% even though the loan pays 8%,then the present value of LCMS' interest tax shield is closest to:

• A) $24.5 million
• B) $18 million
• C) $33.0 million
• D) $20.0 million

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations by comparing current assets to current liabilities.

Inventory Turnover Ratio

A measure of how frequently a company sells and replaces its inventory over a certain period; calculated as cost of goods sold divided by the average inventory.

Inventory Turnover Ratios

A financial metric indicating the number of times a company’s inventory is sold and replaced over a specified period, critical for evaluating inventory efficiency.

Quick Ratios

A financial metric used to gauge a company's liquidity by comparing its most liquid assets, without inventory, to its current liabilities.