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EpiscoWhat EpiscoWhat
wrote...
Posts: 268
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6 years ago
Raceway Products has a market debt-to-equity ratio of .60, a corporate tax rate of 40%, and pays 8% interest on its debt.  The interest tax shield on Raceway's debt lowers its WACC by what amount?
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
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wrote...
6 years ago
Use the formula rwacc =   rE +   rD -   rDτc
The last term  rDτc captures the amount that the WACC is lowered because of the interest tax shield.

So,   rDτc =   .08(.40) = .012 or 1.2%
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