Bertha's Boutique has 3,000 bonds outstanding with a face value of $1,000 each and a coupon rate of 9%.The interest is paid semi-annually.What is the amount of the annual interest tax shield if the tax rate is 34%?
A)$98,500
B)$90,100
C)$90,750
D)$91,800
E)$92,250

Question

Quizplus · Accepted Answer

The annual interest tax shield is calculated as the interest payment multiplied by the tax rate. The annual interest payment is 3,000 bonds * $1,000 * 9% = $270,000. The tax shield is $270,000 * 34% = $91,800.

Bertha's Boutique Has 3,000 Bonds Outstanding with a Face Value