Use the following information to answer the question(s)below.
Wyatt Oil issued $100 million in perpetual debt (at par)with an annual coupon of 7%.Wyatt will pay interest only on this debt.Wyatt's corporate tax rate is expected to be 21% for the foreseeable future.
-Wyatt's annual interest tax shield is closest to:

Question

Quizplus · Accepted Answer

The annual interest tax shield is equal to the annual interest payment multiplied by the corporate tax rate. In this case, the annual interest payment is $7 million (100 million * 7%), and the corporate tax rate is 21%. Therefore, the annual interest tax shield is $1.47 million (7 million * 21%).

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