A company has net income of $20,000 and a tax rate of 35 percent. Its

1.	A company has net income of $20,000 and a tax rate of 35 percent. Its total debt is $25,000, with principal payments of $5,000 due at the end of each year and an annual interest rate of 8%. What will be the company's interest tax shield in the upcoming year?
Answer» Answer: COMPANY's TAX shield in the upcoming year is $700 Explanation: We KNOW that the annual interest rate is 8%, the tax rate is 35% and that the TOTAL debt is $25,000. We then take the annual interest rate and multiply it by the total debt Interest expenses = 0.08$25000 = $2000 We finally take the interest expense and multiply it by the tax rate Tax shield on interest = $20000.35 = $700

A company has net income of $20,000 and a tax rate of 35 percent. Its total debt is $25,000, with principal payments of $5,000 due at the end of each year and an annual interest rate of 8%. What will be the company's interest tax shield in the upcoming year?

Answer»

Answer:

COMPANY's TAX shield in the upcoming year is $700

Explanation:

We KNOW that the annual interest rate is 8%, the tax rate is 35% and that the TOTAL debt is $25,000.

We then take the annual interest rate and multiply it by the total debt

Interest expenses = 0.08*$25000 = $2000

We finally take the interest expense and multiply it by the tax rate

Tax shield on interest = $2000*0.35 = $700