Discuss value of interest tax shield from new debt should be

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1.) Markum Enterprises is considering permanently adding an additional $169 million of debt to its capital structure. Markum's corporate tax rate is 40%.

A. In the absence of personal taxes, the value of interest tax shield from new debt should be (?)

B. If investors pay a tax rate of 45% on interest income, and a tax rate of 25% on income from dividends and capital gains, what is the value of the interest tax shield from the new debt should be? (Round answer 2 decimals places)

2.) With its current leverage, Impi Corporation will have net income next year of $9 million.

A. If Impi's corporate tax rate is 40%, and it pays 6% interest on its debt, how much debt can Impi issue this year and still receive the benefit of the interest tax shield next year? (Round answer to 3 decimals places)

Reference no: EM131749660

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