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brick house cafe has a tax rate of 35 percent and paid total taxes of $57,800. the company had an interest expense of $25,700. what was the value of the interest tax shield?

User Kellen
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Final answer:

The interest tax shield for Brick House Cafe is calculated by multiplying its interest expense of $25,700 by the tax rate of 35 percent, resulting in a value of $8,995.

Step-by-step explanation:

The value of the interest tax shield is calculated by multiplying the interest expense of the company by its tax rate. An interest tax shield reflects the amount by which a company's tax bill is reduced through interest payments on its debt.

The Brick House Cafe has an interest expense of $25,700 and a tax rate of 35 percent. Therefore, to find the interest tax shield, we use the following formula:

Interest Tax Shield = Interest Expense × Tax Rate

Interest Tax Shield = $25,700 × 0.35

Interest Tax Shield = $8,995

Thus, the value of the interest tax shield for Brick House Cafe is $8,995.

To calculate the value of the interest tax shield, we need to first determine the taxable income of Brick House Cafe. Since the total taxes paid were $57,800 and the tax rate is 35%, we can use the formula: Taxable Income = Total Taxes / Tax Rate. Plugging in the values, we get Taxable Income = $57,800 / 0.35.

Next, we need to calculate the interest tax shield. The interest tax shield is the tax savings that a company receives from deducting interest expenses from its taxable income. We can use the formula: Interest Tax Shield = Interest Expense * Tax Rate.

Plugging in the values, we get Interest Tax Shield = $25,700 * 0.35 = $8,995.

User Nyphur
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