Compute the present value of interest tax shields generated by these three debt issues. Consider...

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Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. The marginal tax rate isT_c = 0.30.#1 A four-year loan of $1,300 at 10%. Assume no principal is repaid until maturity.(Do not round intermediate calculations. Round your answer to 2 decimal places.)
#2 A $1,300 perpetuity at 9%.

David · Accepted Answer

Question 1 
Principal amount = $ 1,300 
Interest rate =10% pa or (10/12) pm compounded monthly 
Time period = 4 years or (4*12) = 48 months 
Therefore, Amount at the end of the 48 months = 1300*( 1+(10/1200))
48 
 = $ 1,936.16 
Thus, total interest to be paid = 1936.16 – 1300 = $ 636.

Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. The marginal tax rate is T c = 0.30.#1 A four-year loan of $1,300 at 10%. Assume...

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