Arnell Industries has just issued $15 million in debt (at par). The firm will pay interest only

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Arnell Industries has just issued $15 million in debt (at par). The firm will pay interest only on this debt. Arnell’s marginal tax rate is expected to be 35% for the foreseeable future.

a. Suppose Arnell pays interest of 7% per year on its debt. What is its annual interest tax shield?

b. What is the present value of the interest tax shield, assuming its risk is the same as the loan?

c. Suppose instead that the interest rate on the debt is 6%. What is the present value of the interest tax shield in this case?

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Corporate Finance The Core

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Authors: Jonathan Berk, Peter DeMarzo

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Question Posted: Feb 29, 2024 04:00 AM

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Arnell Industries has just issued $15 million in debt (at par). The firm will pay interest only

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a To calculate the annual interest tax shield for Arnell Industries we first need to find the amount ...View the full answer

Corporate Finance The Core

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