What Is the Amount of the Annual Interest Tax Shield

question 17

Multiple Choice

What is the amount of the annual interest tax shield for a firm with $3 million in debt that pays 12% interest if the firm is in the 35% tax bracket?

• A)$126,000
• B)$234,000
• C)$360,000
• D)$1,050,000 Interest tax shield = interest expense x tax rate
• = $360,000 x .35

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Definitions:

Private Individuals

Persons or entities that are not part of the government or public sector, typically referring to ordinary citizens or privately owned entities.

Money Supply

The aggregate quantity of monetary assets within an economy at a determined point in time.

Required Reserve Ratio

The fraction of deposits that banks are obligated to hold in reserve, either in their vaults or at the central bank, and not loan out.

Excess Reserves

The funds that banks hold over and above the required reserve ratio set by the central bank.