Rappaport Industries has 5,100 perpetual bonds outstanding with a face value of $2,000 each. The bonds have acoupon rate of 5.9 percent and a yield to maturity of 6.2 percent. The tax rate is 21 percent. What is the present valueof the interest tax shield? Multiple ChoiceOO$246,636$234,702$601,800$3,580,200$2,142,000

We can determine the PV of tax shield from perpetual debt using the formula below:

Answered: Rappaport Industries has 5,100…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Rappaport Industries has 5,100 perpetual bonds outstanding with a face value of $2,000 each. The bonds have a coupon rate of 5.9 percent and a yield to maturity of 6.2 percent. The tax rate is 21 percent. What is the present value of the interest tax shield?