Until now, Mammoth-Mart has had no debt. Mammoth-Mart is considering a plan to sell bonds worth $30B and use the proceeds to repurchase 1B shares (on the open market at $30/share). Assume that the debt is sold immediately, that the bonds are a perpetuity with annual coupons at a rate of 6%, and a yield of 7%. If Mammoth-Mart maintains this new level of debt in perpetuity, then what is the present value of the resulting interest tax shields? Assume the tax rate is 26.67%.

Responses

a. $8.0B

b. $9.0B

c. $8.5B

d. $7.8B