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stepladder [879]
3 years ago
5

The June Bug has a $340,000 bond issue outstanding. These bonds have a coupon rate of 6.25 percent, pay interest semiannually, a

nd sell at 101.2 percent of face value. The tax rate is 35 percent. What is the amount of the annual interest tax shield?
Business
1 answer:
andre [41]3 years ago
8 0

Answer:

the amount of the annual interest tax shield = $7437.5

Explanation:

First we need to ckeck the vaelus given on the problem.

$340,000 bond issue outstanding

rate of 6.25%

sell at 101.2% of face value

tax rate is 35 percent

pay interest semiannually

so the amount of the annual interest tax shield will be given by:

Coupon amount paid in a year = $340000 x 6.25 / 100 = $21250

 amount of the annual interest tax shield = $21250 x 35 / 100 = $7437.5

therefore we have that the amount of the annual interest tax shield is $7437.5

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Any ISO 9001:2008 requirement(s) that cannot be applied because of the nature of the business or the product might be excluded.

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