Question
Arnell Industries has $50 million in permanent debt outstanding. The firm will pay interest only on this debt. Arnell's marginal tax rate is expected to
Arnell Industries has $50 million in permanent debt outstanding. 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? $___ million (round to 3 decimal places)
b. What is the present value of the interest tax shield, assuming its risk is the same as the loan? $___ million (round to 1 decimal place)
c. Suppose instead the interest rate on the debt were 8%. What is the present value of the interest tax shield in this case? $___ million (round to 1 decimal place)
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