The Benefits of Debt: a Firm Plans to Issue $1

question 63

Multiple Choice

The benefits of debt: A firm plans to issue $1 million worth of debt at a YTM of 9%. The debt is trading at par. The firm's marginal corporate tax rate is 25%, while its average tax rate is 15%. By how much will this debt issuance reduce the firm's annual tax liability?

• A) $13,500
• B) $22,500
• C) $32,500
• D) None of the above.

---

Definitions:

Employees

Individuals who are hired by a company or organization to perform specific tasks and duties in exchange for compensation.

Same Rules

A principle asserting that all members within a group or organization are subject to the same regulations and expectations.

Cultural Adaptation

The process by which individuals adjust to and integrate with a new cultural environment, involving learning and adopting the norms, values, and behaviors of the new culture.

Drinking Liquid

The act of consuming a fluid substance as part of hydration or during social occasions.