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:

Stock Repurchase

A company's buying back of its own shares from the marketplace, which can reduce the number of outstanding shares and potentially increase the stock value.

Stock Dividend

A payment made by a corporation to its shareholders in the form of additional shares, rather than cash.

Earnings Per Share

A company's profit divided by the outstanding shares of its common stock, showing the portion of a company's profit allocated to each share of stock.

Stock Dividends

A form of dividend payment made by a corporation to its shareholders in additional shares rather than cash, affecting the company's stock price and equity structure.