The pro forma income statement and cash flow statement for OneShot, Inc., are provided below. The firm has a cost of capital of 10%.
-Refer to the income statement and cash flow statement above. What is the value of OneShot's tax shield in the year for which the pro formas are estimated?

Question

The pro forma income statement and cash flow statement for OneShot, Inc., are provided below. The firm has a cost of capital of 10%.     
-Refer to the income statement and cash flow statement above. What is the value of OneShot's tax shield in the year for which the pro formas are estimated?

Quizplus · Accepted Answer

To calculate the tax shield, we need to find the tax savings resulting from the interest expense. 
Tax Savings = Interest Expense x Tax Rate

Tax Rate = 40% 
Interest Expense = $2,300 
Tax Savings = $2,300 x 40% = $920

Therefore, the value of OneShot's tax shield in the year for which the pro formas are estimated is $920.

The Pro Forma Income Statement and Cash Flow Statement for OneShot