Suppose a Project Financed Via an Issue of Debt Requires

question 84

Multiple Choice

Suppose a project financed via an issue of debt requires five annual interest payments of $20 million each year. If the tax rate is 30% and the cost of debt is 5%, what is the value of the interest rate tax shield?

• A)$22.25 million
• B)$22.67 million
• C)$25.98 million
• D)$32.35 million

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Definitions:

Total Asset Turnover Ratio

An indicator assessing the capability of a firm to turn its assets into sales revenue efficiently.

Net Income

The profit of a company after all expenses and taxes have been deducted from revenue.

Stockholders' Equity

The residual assets of a company that belong to the shareholders, calculated as the total assets minus total liabilities.

Total Asset Turnover Ratio

A financial ratio that measures a company's ability to generate sales from its assets by comparing net sales to average total assets.