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The Grant Corporation Is Considering Permanently Adding $500 Million of Debt

Question 14

Essay

The Grant Corporation is considering permanently adding $500 million of debt to its capital structure.Grant's corporate tax rate is 21% and investors pay a tax rate of 37% on their interest income and 15% on their income from capital gains and dividends.Calculate the present value of the interest tax shield provided by this new debt.

Correct Answer:

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τ* = blured image = blured image = -0.0415
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