What is the amount of annual interest tax shield for a firm with $3 million in debt that pays 12% interest if the corporate tax rate is 35%?
A)$126,000
B)$234,000
C)$360,000
D)$1,050,000

Question

Quizplus · Accepted Answer

The annual interest tax shield is calculated as follows:Interest expense = $3 million x 12% = $360,000Tax shield = Interest expense x Corporate tax rate= $360,000 x 35%= $126,000

What Is the Amount of Annual Interest Tax Shield for a Firm