Suppose a Project Financed Via an Issue of Debt Requires

question 4

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)$27.74 million
• B)$32.64 million
• C)$23.20 million
• D)$31.35 million

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Definitions:

Willingness to Pay

The maximum amount an individual or entity is willing to pay for a good or service, reflecting its perceived value.

Marginal Utility

The additional satisfaction or benefit gained from consuming one more unit of a good or service.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, representing their gained benefit.

Market Price

The current price at which a commodity, security, or service can be bought or sold in a particular market.