Use the Information for the Question(s) Below

question 32

Multiple Choice

Use the information for the question(s) below.
KD Industries has 30 million shares outstanding with a market price of $20 per share and no debt. KD has had consistently stable earnings, and pays a 15% tax rate. Management plans to borrow $200 million on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares.
-The present value of KD's interest tax shield is closest to:

• A) $130 million
• B) $200 million
• C) $400 million
• D) $70 million

---

Definitions:

Share Repurchase

A program by which a company buys back its own shares from the marketplace, reducing the amount of outstanding stock and potentially increasing the value of remaining shares.

Excess Cash

This refers to the amount of money a company holds that is beyond what is required for its operational needs and potential investments.

Shares Outstanding

Represents the total number of shares of a corporation that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares.

Owners' Equity

The residual interest in the assets of a company after deducting its liabilities.