Consider the M&M world of corporate taxes. The interest expense is $10 million, the corporate tax rate is 20%, and the discount rate on the tax shield is 10%. What is the gain to leverage or the value added from issuing debt?
A) $19 million
B) $20 million
C) $29 million
D) $30 million
Answer: B
Explanation: B) Tax Shield = = = $20 million.
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