Suppose a Firm Has $50 Million of Permanent Debt

question 65

Multiple Choice

Suppose a firm has $50 million of permanent debt.If the tax rate is 25% and the cost of debt is 7%,what is the value of the interest tax shield each year?

• A)$3.5 million
• B)$50 million
• C)$0.875 million
• D)$178.6 million
• E)$12.5 million

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Definitions:

Production Possibility Frontiers

A curve depicting all maximum output possibilities for two goods, given a set of inputs.

Rice

A staple food grain consumed widely around the world, particularly in Asia, known for its versatility and ability in sustaining large populations.

Comparative Advantage

The ability of an individual or country to produce a particular good or service at a lower opportunity cost than others.

David Ricardo

A British economist known for his theories on comparative advantage and rent, significantly influencing the field of economics.