Use the Information for the Question(s) Below

question 42

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) $18.0 million
• C) $33.0 million
• D) $20.0 million

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Definitions:

Carboxylic Acids

Organic acids characterized by the presence of at least one carboxyl group (-COOH), which imparts acidic properties to the molecule.

Resonance Stabilization

A concept in chemistry where the bonding in molecules or ions can be shown by several equivalent electron dot structures (resonance structures), leading to a stabilization of the molecule.

Carboxylate Ion

A negatively charged ion (anion) that results from the deprotonation of a carboxylic acid's hydroxyl group.

Strongest Acid

Refers to an acid with the highest tendency to donate a proton (H+) in a solution, often having a very low pH value.