A Firm Has Interest Expense of $6 500 Each Year

question 97

Multiple Choice

A firm has interest expense of $6 500 each year for 10 years. If the tax rate is 35% and the discount rate is 6%, compute the value of the interest rate tax shield.

• A)$16 578
• B)$16 424
• C)$16 987
• D)$16 744

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Definitions:

Capital Employed

The total amount of capital used for the acquisition of profits by a firm or project, including the value of all assets employed in a business.

Production Function

A formula that specifies the output generated by a firm from varying combinations of factor inputs.

Marginal Cost

The supplementary expense incurred by fabricating one more unit of a product or service.

Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain constant.