Question

Markum Enterprises is considering permanently adding an additional

$187

million of debt to its capital structure.​ Markum's corporate tax rate is

21%.

a. Absent personal​ taxes, what is the value of the interest tax shield from the new​ debt?

b. If investors pay a tax rate of

37%

on interest​ income, and a tax rate of

20%

on income from dividends and capital​ gains, what is the value of the interest tax shield from the new​ debt?

a. Absent personal​ taxes, what is the value of the interest tax shield from the new​ debt?

In the absence of personal​ taxes, the value of interest tax shield from new debt should be

​$39.2739.27

million.

​ (Round to two decimal​ places.)b. If investors pay a tax rate of

37%

on interest​ income, and a tax rate of

20%

on income from dividends and capital​ gains, what is the value of the interest tax shield from the new​ debt?If investors pay a tax rate of

37%

on interest​ income, and a tax rate of

20%

on income from dividends and capital​ gains, the value of the interest tax shield from new debt should be

​$nothing

million. ​ (Round to two decimal​ places.)

Answer 1