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Q7-RK Inc. currently has $250 million in debt outstanding with an 8% interest rate. The terms of the loan require the firm to repay $50
Q7-RK Inc. currently has $250 million in debt outstanding with an 8% interest rate. The terms of the loan require the firm to repay $50 million of the balance each year. Suppose that the marginal corporate tax rate is 35% and that the interest tax shields have the same risk as the loan. Determine the present value of the interest tax shields from this debt? (10 pts.) Hint: You may consult the following Table. Year Beginning Balance Interest Expense Ending Balance Tax Shield PV of Tax Shield 1 250 ? 200 ? ? 2 200 ? 150 ? ? 3 150 ? 100 ? ? 4 100 ? 50 ? ? 5 ? 0 ? ? 50 Total =
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