Your Firm Has a Bond Issue with a Face Value

question 62

Multiple Choice

Your firm has a bond issue with a face value of $250,000 outstanding.These bonds have a coupon rate of 7 percent,pay interest semiannually,and have a current market price equal to 103 percent of face value.What is the amount of the annual tax shield on debt given a tax rate of 21 percent?

• A)$3,675
• B)$6,309
• C)$4,500
• D)$47,500
• E)$52,500

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Definitions:

Depreciation Expense

Methodically dispersing the cost of a physical asset over its serviceable lifetime.

Dividends

Distribution of a portion of a company's earnings, decided by the board, to a class of its shareholders.

Closing Entries

Journal entries made at the end of an accounting period to transfer balances from temporary accounts to permanent accounts, closing out the period.

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions to shareholders, reinvested in the business or kept as reserve.