A Firm Has Interest Expense of $2 500 Each Year

question 18

Multiple Choice

A firm has interest expense of $2 500 each year for 10 years. If the tax rate is 30% and the discount rate is 7%, compute the value of the interest rate tax shield.

• A)$5 744
• B)$5 268
• C)$5 918
• D)$6 987

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Definitions:

Outstanding Shares

The total number of shares of a corporation's stock that have been issued and are currently owned by shareholders, including those held by institutional investors and restricted shares.

Journal Entries

Journal entries are the initial records of financial transactions in the accounting process, indicating the debit and credit impact on specific accounts.

Creditor Relationship

The financial and business dynamics between a creditor, who extends credit, and a debtor, who owes the creditor money.

Owner Relationship

The legal and managerial relationship between the owner(s) of a business and the business entity itself.