If the PV of perpetual tax shields discounted at 5% equals 300, what is the approximate annual tax shield?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards

From $24.99Unlock all

Study for the Finance and Investment Challenge Test. Approaches include flashcards and multiple-choice questions with hints and explanations. Ready yourself to ace the exam!

Multiple Choice

If the PV of perpetual tax shields discounted at 5% equals 300, what is the approximate annual tax shield?

The idea here is that a perpetual cash flow behaves like a perpetuity: its present value equals the annual cash flow divided by the discount rate. If the present value is 300 and the discount rate is 5% (0.05), the annual tax shield is 300 × 0.05 = 15. Check: a perpetuity paying 15 forever at 5% has value 15 / 0.05 = 300, which matches. So the approximate annual tax shield is 15.

If the PV of perpetual tax shields discounted at 5% equals 300, what is the approximate annual tax shield?

Study for the Finance and Investment Challenge Test. Approaches include flashcards and multiple-choice questions with hints and explanations. Ready yourself to ace the exam!

If the PV of perpetual tax shields discounted at 5% equals 300, what is the approximate annual tax shield?

Get the latest from Passetra