APU FINC600 Week 6 Quiz (2016 Version)
Question 1 of 15
The main advantage of debt financing for a firm is:
I) no SEC registration is required for bond issue
II) interest expense of a firm is tax deductible
III) unlevered firms have higher value than levered firms
A.I only
B.II only
C.III only
D.I and III only
Question 2 of 15
If a firm permanently borrows $100 million at an interest rate of 8%, what is the present value of
the interest tax shield? (Assume that the tax rate is 30%)
A.$8.00 million
B.$5.6 million
C.$30 million
D.$26.67 million
E. None of the above
PV of interest tax shield = (0.3)(100) = $30 million
Question 3 of 15
In order to calculate the tax shields provided by debt, the tax rate used is the:
Question 1 of 15
The main advantage of debt financing for a firm is:
I) no SEC registration is required for bond issue
II) interest expense of a firm is tax deductible
III) unlevered firms have higher value than levered firms
A.I only
B.II only
C.III only
D.I and III only
Question 2 of 15
If a firm permanently borrows $100 million at an interest rate of 8%, what is the present value of
the interest tax shield? (Assume that the tax rate is 30%)
A.$8.00 million
B.$5.6 million
C.$30 million
D.$26.67 million
E. None of the above
PV of interest tax shield = (0.3)(100) = $30 million
Question 3 of 15
In order to calculate the tax shields provided by debt, the tax rate used is the:
