Taxallergy, a typical Belgian Accounting Consulting firm has a 22% tax rate. Its total interest payment...
Homework Answers
Total interest payment = $14,300,000
Tax rate = 22%
Interest tax shield = $14,300,000 * 22% = $3,146,000
Interest tax shield refers to the reduction in the tax liability, due to the interest cost. Thus interest expenses acts as a Shield against the tax obligations.
Actual interest expense = $14,300,000 Due to the tax rate of 22%, the net interest cost to the firm will be ($14,300,000 - $3,146,000) which is $11,154,000.
So, Debt obligation helped the Firm to save $3,146,000
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