tax shield formula excel

A company carries a debt balance of 8000000 with a 10 cost of debt and a 35 tax rate. Interest Tax Shield Example.

Solved Calculating Ocf And The Depreciation Tax Shield Excel Chegg Com

Next determine the income tax paid during the year and it is computed as the product of effective corporate tax rate and the income before tax.

. The reason why the pre-tax cost of debt must be tax-affected is due to the fact that interest is tax-deductible which effectively creates a tax shield ie. This is usually the deduction multiplied by the tax rate. AfterTax Cost of Debt Formula.

Increase in GDP ΔY 80000000 Therefore given the tax cut by the government the GDP is expected to increase by 8000 million. The formula for tax multiplier can be derived by using the following steps. Next determine the depreciation amortization expense on the tangible and intangible assets respectively.

The effect of a tax shield can be determined using a formula. The interest expense reduces the taxable income earnings before taxes or EBT of a company. It is also reported as a line item in the income statement.

Tax Shield Deduction x Tax Rate. To learn more launch our free accounting and finance courses.

Tax Shield Formula How To Calculate Tax Shield With Example