Your firm has a $300,000 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)$7,350
D)$17,500
E)$18,025

Question

Quizplus · Accepted Answer

The annual interest tax shield is calculated as the interest payment multiplied by the tax rate. The bond's face value is $300,000, and the annual coupon payment is 7% of this, which is $21,000. The tax shield is $21,000 * 35% = $7,350.

Your Firm Has a $300,000 Bond Issue Outstanding