question archive A company has a bond loan of 2,000 bonds with a face value of Rp
A company has a bond loan of 2,000 bonds with a face value of Rp
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A company has a bond loan of 2,000 bonds with a face value of Rp.10,000,000 each and pays a coupon of 9% per year, payable semi-annually. How big is the interest tax shield per year, if the company pays 24% income tax?
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| Annual interest on Bond |
| Annual interest on Bond = Number of Bonds issued x Face Value per Bond x Annual coupon rate |
| Annual interest on Bond = 2,000 Bonds x Rp 10,000,000 x 9.00% |
| Annual interest on Bond = Rp 1,800,000,000 per year |
| Interest Tax Shield per year |
| Interest Tax Shield per year = Annual interest on Bond x Tax rate |
| Interest Tax Shield per year = Rp 1,800,000,000 x 24% |
| Interest Tax Shield per year = Rp 432,000,000 |
| Hence, the Interest Tax Shield per year will be Rp 432,000,000 |
