Use the Following Information to Answer the Question(s) Below

question 84

Multiple Choice

Use the following information to answer the question(s) below.
Wyatt Oil issued $100 million in perpetual debt (at par) with an annual coupon of 7%. Wyatt will pay interest only on this debt. Wyatt's marginal tax rate is expected to be 40% for the foreseeable future.
-Assuming its risk is the same as the loan,the present value of Wyatt's annual interest tax shield is closest to:

• A) $4.2 million
• B) $7.0 million
• C) $40 million
• D) $60 million

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Definitions:

Predictor Variable

A variable that is used in statistical models to forecast or predict the outcome of a dependent variable.

Regression Formula

An equation that describes the statistical relationship between one or more predictor variables and the response variable.

Slope

The measure of the steepness or incline of a line, defined as the ratio of the vertical change to the horizontal change between two points on the line.

Regression Formula

A mathematical equation used in statistical analysis to predict the value of a dependent variable based on the value(s) of one or more independent variables.