Assume that five years have passed since Wyatt issued this debt.While tax rates have remained at 40%,interest rates have dropped so that Wyatt's current cost of debt capital is now only 4%.Wyatt's annual interest tax shield is now closest to:

Question

Quizplus · Accepted Answer

A)Annual interest tax shield = Debt × Interest × Tax rate = $100 million × 7% × 40% = $2.8 million
Note that although interest rates have dropped,the coupon payment on the debt issue has not.

Assume That Five Years Have Passed Since Wyatt Issued This