If annual lease payments for a firm are $26,000,calculate the tax shield of these payments,given that the marginal tax rate is 35%.

Question

Quizplus · Accepted Answer

Tax shield is the reduction in taxable income due to deductible expenses like lease payments. The formula to calculate tax shield is as follows:

Tax shield = (deductible expense) x (marginal tax rate)

Here, deductible expense is the annual lease payment, which is $26,000, and the marginal tax rate is 35%.

Tax shield = $26,000 x 0.35 = $9,100

Therefore, the tax shield of these payments is $9,100. Hence, the best choice is A).

If Annual Lease Payments for a Firm Are $26,000,calculate the Tax