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Arnell Industries has just issued $ 15 million in debt​ (at par). The firm will pay interest only on this

debt.​ Arnell's marginal tax rate is expected to be 40 % for the foreseeable future.

a. Suppose Arnell pays interest of 7 % per year on its debt. What is its annual interest tax​ shield?

b. What is the present value of the interest tax​ shield, assuming its risk is the same as the​ loan?

c. Suppose instead that the interest rate on the debt is 10 %. What is the present value of the interest tax shield in this​ case?

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