1. L Brands recently borrowed $3 billion by issuing a 20-year bond at a yield of 5.5%. It plans to repay the bonds in 20 years without refinancing them with new debt. L Brands tax rate is expected to be 35% for the foreseeable future. What is the present value of the tax shield offered by this bond?

A. $165 million B. $690 million C. $1.05 billion D. $1.97 billion

2. Suppose again that L Brands recently borrowed $3 billion by issuing a 20-year bond at a yield of 5.5%, but announces it will refinance the bonds at maturity, so its debt will permanently be $3 billion higher than it was prior to the bond issuance. What is the present value of the tax shield offered by this bond?

A. $165 million B. $690 million C. $1.05 billion D. $1.97 billion

3. In a world with taxes, which of the following effects does debt have?

A. A decrease in the cost of equity capital B. An increase in WACC C. A decrease in WACC D. An increase in the cost of equity capital