Question Compute the present value of interest tax shields generated by these th

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Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. The marginal tax rate is Tc = 0.34.

A $1,500, one-year loan at 6%.(Do not round intermediate calculations. Round your answer to 2 decimal places.)

A five-year loan of $1,500 at 6%. Assume no principal is repaid until maturity. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. The marginal tax rate is Tc = 0.34.

Explanation / Answer

a. PV(tax shield)= Tc(rDD)/1+rD=0.34(0.06*$1,500/1.06)=$28.86

b. PV(tax shield)= ? 0.34(0.06* $1,500)/(1.06)t=$167.7

c. PV(tax shield) = TCD =$510

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