Compute the after-tax interest expense for a firm with Interest on Excess Cash = $1,000, Interest on Debt = $5,000, and a tax rate of 30%.
A) $2,500
B) $2,800
C) $3,100
D) $3,300

Question

Quizplus · Accepted Answer

B) After-tax interest expense = (1 - tax rate) × (Interest on Debt - Interest on Excess Cash)
After-tax interest expense = (1 - 0.3) × (5,000 -1,000) = $2,800

Compute the After-Tax Interest Expense for a Firm with Interest