A firm with $250 million in assets and no debt financing. The shareholders of Legend have convinced management to lever its assets by issuing $75 million in debt at 8% interest, and using the $75 million proceeds from the debt to repurchases that same amount of equity. The corporate tax rate is 31%. How much will the firm save in taxes, per year, after the debt issue?
$77.50 million
$20.00 million
$ 1.86 million
$ 0 million
$ 6.20 million
What is the answer and please explain your result? I want to know the mathematical calculation?
