Suppose a Project Financed Via an Issue of Debt Requires

question 55

Multiple Choice

Suppose a project financed via an issue of debt requires six annual interest payments of $20 million each year.If the tax rate is 30% and the cost of debt is 8%,what is the value of the interest rate tax shield?

• A)$31.35 million
• B)$27.74 million
• C)$23.20 million
• D)$32.64 million
• E)$36 million

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Definitions:

Operating Activities

Business functions directly related to providing goods or services, such as sales, production, and day-to-day administration.

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the asset’s consumption or wear and tear.

Accounts Receivable

Accounts receivable is a balance sheet item representing money owed to a business for goods or services delivered but not yet paid for by customers.

Indirect Statement

A financial statement method typically used in cash flow statements to adjust net income for changes in non-cash accounts.