What is the present value of the interest tax shield

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Reference no: EM132979708

Question: Camden Industries has just issued a perpetual bond with an annual coupon of 8% and nominal value equal to £15 million. The firm will pay interest only on this debt. Camden's marginal tax rate is expected to be 30% for the foreseeable future.

a. If the bond sells for an amount equal to the nominal value, what is the yield on Camden's debt?

b. What is the present value of the interest tax shield?

c. Suppose instead that the annual coupon on the debt had been 7% but it had still sold at a price equal to the nominal value. What would the present value of the interest tax shield have been in this case?

Reference no: EM132979708

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