Final answer:
The interest tax shield of Sand Mountain Resort is calculated as the total interest payments multiplied by the tax rate, which is $6,800,000 × 0.45, resulting in $3,060,000. So, answer B is the correct choice.
Step-by-step explanation:
The question involves calculating the interest tax shield for Sand Mountain Resort, which has a total interest payment of $6.8 million and a tax rate of 45%.
The interest tax shield is a deduction that companies get on their taxable income due to interest payments on debt.
The interest tax shield can be calculated using the formula:
Interest Tax Shield = Interest Payments × Tax Rate
In this case:
Interest Tax Shield = $6,800,000 × 0.45
This gives us an interest tax shield of:
Interest Tax Shield = $3,060,000
Therefore, the correct answer is B. $3,060,000.