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Suppose a firm takes out a $200 million loan today (at date t=0). The loan has a 14% interest rate, and the probability of default
Suppose a firm takes out a $200 million loan today (at date t=0). The loan has a 14% interest rate, and the probability of default is zero. The loan is paid back in equal installments, that is, the loan contract specifies only two payments of exactly equal amounts at the end of years 1 and 2 (at dates 1 and 2).The firm's tax rate is 30%. Suppose the firm has sufficient profits to take full advantage of the interest tax shields provided by this loan.
A. (6 points) What is the payment that the firm makes on dates 1 and 2?
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