Your firm has a $475,000 bond issue outstanding. These bonds have a 7.5% coupon, pay interest semi-annually, and have a current market price equal to 99.6% of face value. What is the amount of the annual interest tax shield given a tax rate of 34%?
A) $12,064
B) $12,087
C) $12,113
D) $23,418
E) $23,513

Question

Quizplus · Accepted Answer

The annual interest tax shield is calculated as the interest expense multiplied by the tax rate. The annual interest expense is $475,000 * 7.5% = $35,625. The tax shield is $35,625 * 34% = $12,113.

Your Firm Has a $475,000 Bond Issue Outstanding