Question

Braxton Enterprises currently has debt outstanding of $ 35 million and an interest rate of 9 % Braxton plans to reduce its debt by repaying $ 7 million in principal at the end of each year for the next five years. If​ Braxton's marginal corporate tax rate is 40 %, what is the interest tax shield from​ Braxton's debt in each of the next five​ years?

The interest tax shield in year one is -

the interest tax shield in year two (round to three decimal place)

the interest tax shield in year three (round to three decimal place)

the interest tax shield in year four( round to three decimal place)

the interest tax shield in year five (round to three decimal place)

Answer 1

	i	ii=i*9%	iii	iv=i-iii	v=ii*40%
year	Beginning loan balance	Interest amount	Principal repayment	ending loan balance	Interest tax shield
1	35000000	3150000	7000000	28000000	1260000
2	28000000	2520000	7000000	21000000	1008000
3	21000000	1890000	7000000	14000000	756000
4	14000000	1260000	7000000	7000000	504000
5	7000000	630000	7000000	0	252000