PV of the interest tax shields, gains from using leverage
1) If a firm has $7.4 million in debt, $22.4 million in equity, a tax rate of 34%, and pays 6% interest on debt, what is the firm’s PV of the interest tax shields?
c. $15 million
d. $2.516 million
2) What do you need to know to calculate the gains from using leverage for individual companies?
a. tax rate on corporate profits
b. market value of a firm’s outstanding debt
c. personal tax rate on income from debt
d. personal tax rate on income from stock
e. all of the above