If a firm permanently borrows $100 million at an interest rate of 8 percent, what is the present value of the interest tax shield? (Assume that the marginal corporate tax rate is 30 percent.)

Question

Business

Michelle Fletcher

17 November, 23:53

If a firm permanently borrows $100 million at an interest rate of 8 percent, what is the present value of the interest tax shield? (Assume that the marginal corporate tax rate is 30 percent.)

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Answers (1)

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Aubree Benson · Answer 1

The present value of the interest tax shield = 30% x $100 million = $30 million.

Explanation:

The interest tax shield refers to the amount of money that a business can deduct form income taxes due to interest expenses. A business can deduct the whole amount of money it spends as interest expenses. This deductions reduce the total costs of borrowing money.