Ask Question
9 August, 20:20

Medco has ebit of $1 million for the current year. on the firm's balance sheet, there is $5 million of debt outstanding that carries a coupon rate of 15 percent. if the firm faces a corporate tax rate of 40%, what is the present value of the firm's tax shields?

+5
Answers (1)
  1. 9 August, 23:32
    0
    Tax shield for a company is the amount exempted from tax due to interest expense incurred by the company. Medco has earnings before interest and tax of $1million. Out of which, $5 million * 15% will be interest expense. Therefore, tax shield = 5 million * 0.15 * 0.4 = $300,000 (where 0.4 is the tax rate)
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Medco has ebit of $1 million for the current year. on the firm's balance sheet, there is $5 million of debt outstanding that carries a ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers