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A company borrows $800 million at an interest rate of 7.6% per annum. It pays taxes at an effective rate of 35%.

(a) What is the tax shield if the debt is permanent at $800 million?

(b) What is the tax shield if the debt is repaid after 5 years?

(c) What is the tax shield if the company expects to keep the debt ratio constant and the return on assets is 10%?

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92839731

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