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Compute the present value of interest tax shields

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Q1. Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. The marginal tax rate is Tc = 0.35.

i. A RM1,000, one-year loan at 8%.

ii. A five-year loan of RM1,000 at 8%. Assume no principal is repaid until maturity.

iii. A RM1,000 perpetuity at 7%.

Q2. What is the relative tax advantage of debt when corporate and personal taxes are considered?

Reference no: EM132606202

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