Georga's Restaurants has 7,000 bonds outstanding with a face value of $1,000 each, a market price of $982, and a coupon rate of 6.95 percent. The interest is paid semiannually. What is the amount of the annual interest tax shield if the tax rate is 23 percent?

Question

Quizplus · Accepted Answer

The annual interest payment is $7,000 x 6.95% x 1/2 = $240.25. The annual interest tax shield is $240.25 x 23% = $55.26. The total annual interest tax shield is $55.26 x 2 = $110,420.

Georga's Restaurants Has 7,000 Bonds Outstanding with a Face Value