Your Firm Currently Has $250 Million in Debt Outstanding with an 8

question 15

Essay

Your firm currently has $250 million in debt outstanding with an 8% interest rate.The terms of the loan require the firm to repay $50 million of the balance each year.Suppose that the marginal corporate tax rate is 35% and that the interest tax shields have the same risk as the loan.What is the present value of the interest tax shields from this debt?

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Definitions:

Negotiability

The ability of a financial instrument to be transferred from one party to another with the title passing legally to the transferee.

United States

A federal republic consisting of fifty states, a federal district, and various territories, characterized by its democratic government and diverse population.

Comparative Negligence

A principle of tort law that compares the fault of each party involved in an accident and allocates the damages accordingly.

Forgeries

The act of fraudulently making or altering a document or item with the intent to deceive.