Your ﬁrm has a €250,000 bond issue outstanding.These bonds have a 7% coupon, pay interest semiannually, and have a current market price equal to 103% of face value.What is the amount of the annual interest tax shield given a
Tax rate of 35%?
A)€6,125
B)€6,309
C)€9,500
D)€17,500
E)€18,025

Question

Quizplus · Accepted Answer

The annual interest payment on the bond is 7% of €250,000, which equals €17,500. The interest tax shield is the tax rate times the interest payment, so 35% of €17,500 equals €6,125.

Your ﬁRm Has a €250,000 Bond Issue Outstanding