Use the Information for the Question(s)below

question 30

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.
-LCMS' annual interest tax shield is closest to:

• A)$2.8 million
• B)$2.0 million
• C)$3.6 million
• D)$5.6 million

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Definitions:

Credit Sale

A transaction where the payment for goods or services is deferred, allowing the buyer to pay at a later date.

Firm Deposits

Deposits made by a firm that are typically fixed for a certain term or period, which might earn interest.

Bank Credits

The aggregate amount of credit available to a borrower from the banking system.

Net Present Value

A method of evaluating the profitability of an investment by calculating the difference between the present value of cash inflows and the present value of cash outflows over the investment's lifetime.