Question
ECB borrows $1700000 USDs by issuing 4-year bonds. ECB's cost of debt is 2.5%, so it will need to pay $42500 USDs in interest each
ECB borrows $1700000 USDs by issuing 4-year bonds. ECB's cost of debt is 2.5%, so it will need to pay $42500 USDs in interest each year for the next 4 years, and then repay the principal $1700000 USD in year 4. ECB's marginal tax rate will remain 35 throughout this period. By how much (in USDs) does the interest tax shield increase the value of ECB?
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Financial Markets And Institutions
Authors: Frederic S. Mishkin, Stanley G. Eakins
7th Edition
013213683X, 978-0132136839
