LCMS Industries has $70 million in debt outstanding. The firm will pay only interest on this debt (the debt is perpetual). LCMS'

Question

2 years ago

11

marginal tax rate is 35% and the firm pays a rate of 8% interest on its debt. The present value of LCMS' interest tax shield is closest to:_________

1 answer:

egoroff_w [7] · Answer 1 · 2022-09-10T10:09:14+03:00

Answer:

$24.5 million

Explanation:

Calculation for The present value of LCMS' interest tax shield

Using this formula

Present Value of Tax shield = Debt outstanding× Marginal tax rate

Let plug in the formula

Present Value of Tax shield=$70 million× .35

Present Value of Tax shield=$24.5 million

Therefore The present value of LCMS' interest tax shield is closest to: $24.5 million