What is the value of interest tax shield

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Reference no: EM132011939

ABC company has $500,000,000 in 9% debt outstanding. The corporate tax rate is 35%.

A) If the personal tax rate for both debt and equity income is 0, what is the value of the interest tax shield?

B) If the personal tax rate on equity income is 15% and interest income is 45%, should the firm try to eliminate its debt? Show your work.

C) Could you have answered part (b) without any additional calculations (i.e. given what you had already calculated earlier in the question)? Why or why not?

Reference no: EM132011939

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