Tax Shield

Related BrainMass Solutions

• Legitron Corporation: Interest Tax Shield Benefit

  Thus, Tax shield = Principal of debt*interest rate*tax rate Tax shield = $365,000,000*.10*.34 Tax shield = $36,500,000*.34 Tax shield = $12,410,000 This solution illustrates how to compute the tax shield for interest.

• Present value of interest tax shields

  Tax rate = 0.35 Therefore interest tax shield= $28 =.35 x $80.

• Present value of the interest tax shields from the debt

  Tax shield = 10X40% = $4 million Year 2- Interest paid = 75X10%=$7.5 million. Tax shield = 7.5X40% = $3 million Year 3- Interest paid = 50X10%=$5 million. Tax shield = 5X40% = $2 million Year 4- Interest paid = 25X10%=$2.5 million.

• The Interest Tax Shield

  486020 The Interest Tax Shield Why is it important to calculate the value of the interest tax shield if a firm adjusts its debt annually to a target level?

• The Present Value of Tax Shield

  What is the present value of the tax shield if the tax rate is 35 percent?

• Debt tax shield

  The earning before interest and tax should be equal to the interest amount so that the earnings before tax are zero and full interest tax shield is taken.

• Leasing vs purchasing the equipment

  Present value of annual tax shield due to depreciation: n= 5 r= 4.55% PVIFA (5 periods, 4.55% rate ) = 4.383867 Value of depreciation tax shield= $297,500 Therefore present value of depreciation tax shield= $1,304,200

• Calculate the after-tax net cash outflow...

  The Tax-deductible cash expenses provide a tax shield , just like the Depreciation Tax Shield for example.

• WACC, Interest Tax Shield

  . $30 million Tax shield for permanent borrowing = tax rate x Debt= $30 million =30%*100 MCQs on WACC, Interest Tax Shield have been answered.

• Present value of depreciation tax shield

  PV pf depreciation tax shield = 4,800 X PVIFA (5,12%) = 4,800 X 3.6048 = $17,302.93 The solution explains how to calculate the present value of depreciation tax shield.