Suppose a Project Financed Via an Issue of Debt Requires

question 72

Multiple Choice

Suppose a project financed via an issue of debt requires six annual interest payments of $20 million each year.If the cost of debt is 8%,and the present value of the interest rate tax shield is $27.74 million,what is the firm's tax rate?

• A)25%
• B)30%
• C)33%
• D)35%
• E)40%

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Definitions:

Voting Stock

Shares of a company’s stock that grant the shareholder the right to vote on corporate governance issues and board member elections.

Market Value

The current price at which an asset or service can be bought or sold in an open market.

Derivative Suit

A legal action brought by shareholders on behalf of a corporation against third parties, typically for harm done to the corporation.

Corporate Management

The administration and control of a corporation, involving decision-making by executives and oversight by a board of directors.