Final answer:
To calculate the net savings on interest after tax, deduct the interest paid multiplied by the tax rate from the total interest. For a debt capital of $50,000 and an interest rate of 7.5% with a tax rate of 40%, the savings is $2,250.
Step-by-step explanation:
To calculate the net savings on the interest after tax, we first need to calculate the interest on the debt capital. The interest amount is calculated by multiplying the debt capital by the interest rate: $50,000 * 7.5% = $3,750.
Next, we need to calculate the income after interest and tax. To do this, we subtract the interest on debt capital from the income before interest and tax: $35,000 - $3,750 = $31,250.
Finally, we calculate the net savings on the interest after tax by multiplying the income after interest and tax by the tax rate: $31,250 * 40% = $12,500.
To determine the net savings on the interest calculated after tax, we first need to calculate the total interest paid on the debt capital. The interest paid is calculated as $50,000 (Debt Capital) × 7.5% (Interest Rate) = $3,750. To find the after-tax interest expense, we subtract the total interest paid multiplied by the tax rate from the total interest paid: $3,750 - ($3,750 × 40%) = $3,750 - $1,500 = $2,250. The net savings on interest after tax is therefore $2,250.