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johnpaech johnpaech
wrote...
Posts: 1098
Rep: 7 0
6 years ago
The interest tax shield provided by Omicron's new project in year 1 is closest to:
A) $3.00
B) $1.05
C) $50.25
D) $17.60
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
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Replies
wrote...
6 years ago
B
Explanation:  B) rwacc =   rE +   rD (1 - τc), where D = net debt = Debt - Cash
rwacc =   (.12) +   (.06)(1 - .35) = .0876
  =   +   +   = $125.69
D0 = d × 
D0 =   ($125.69) = $50.28
So, Interest tax shield in year 1 = 50.28(.06)(.35) = 1.055880 or 1.06
johnpaech Author
wrote...
5 years ago
You took a load off my back, thanks for answering correctly
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