Compute the after-tax interest expense for a firm with Interest on Excess Cash = $5,000, Interest on Debt = $8,000, and a tax rate of 30%.
A) $2,100
B) $2,200
C) $2,500
D) $2,700

Question

Quizplus · Accepted Answer

A) After-tax interest expense = (1 - tax rate) × (Interest on Debt - Interest on Excess Cash)
After-tax interest expense = (1 - 0.3) × (8,000 - 5,000) = $2,100

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