Capital Computer Corporation takes out a $10,000 loan to finance the purchase of new physical capital. It must repay the loan in full with interest in one year. The interest rate is 10 percent and the applicable corporate tax rate is 30 percent. What is the present value savings from the deductibility of the interest payment from Capital Computer Corporation’s taxes? Please round your answer to the nearest dollar

Capital Computer Corporation takes out a $10,000 loan to finance the purchase of new physical capital. It must repay the loan in full with interest in one year. The interest rate is 10 percent and the applicable corporate tax rate is 30 percent. What is the present value savings from the deductibility of the interest payment from Capital Computer Corporation’s taxes? Please round your answer to the nearest dollar

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

See similar textbooks

Similar questions

If Bergen Air Systems takes out a $100,000 loan, with eight equal principal payments due over the next eight years, how much will be accounted for as a current portion of a noncurrent note payable each year?
Please include calculations: A $100,000 loan can be obtained at a 10 percent rate with monthly payments over a 15-year term. a. What is the after-tax effective interest rate on the loan, assuming the borrower is in a 30 percent tax bracket and the loan is held only three years? Assume that the benefit of interest deductions for tax purposes occurs at the same time payments are made. b. Calculate the after-tax effective cost for the above loan, assuming that 5 points are charged and that the points are tax deductible at the time they are paid. c. How does the after-tax cost in part (b) compare with the pretax effective cost of the loan?
A $100,000 loan can be obtained at a 10 percent rate with monthly payments over a 15-year term.a. What is the after-tax effective interest rate on the loan, assuming the borrower is in a 30 percent tax bracket and the loan is held only three years? Assume that the benefit of interest deductions for tax purposes occurs at the same time payments are made.b. Calculate the after-tax effective cost for the above loan, assuming 5 points are charged and that the points are tax-deductible at the time they are paid.c. How does the after-tax cost in part (b) compare with the pretax effective cost of the loan?
A buyer is considering purchasing a 10-acre parcel in Peoria, Arizona for economic development. The parcel has a sales price of $720,000. The buyer agrees with the seller for purchasing the property with 15% down up front and paying off the balance in 12-months. If a bank is willing to provide 3% annual interest, compounded monthly, how much should the monthly deposit be into that account to pay off the desired balance to the seller?
Compute the specified quantity. You are expecting a tax refund of $4,000 in 10 weeks. A tax preparer offers you an "interest-free" loan of $4,000 for a fee of $50 to be repaid by your refund check when it arrives in 10 weeks. Thinking of the fee as interest, what weekly simple interest rate would you be paying on this loan (as a percent)? What is the corresponding annual rate (as a percent)? weekly simple interest rate % annual simple interest rate %
Auckland Corporation has borrowed $700,000 from a bank. Auckland will repay the loan in ten annual installments of $100,000 each. The first installment will be paid a year from now. Find the rate of interest charged by the bank.
You were able to sell a car worth 2,100,000, which would be financed by a bank. You told your buyer that the required down payment was 20% of the net price. Your buyer also need to pay the monthly amortization of 34,950 for 5 years.How much was the down payment paid by the buyer?How much was the gross balance or the amount to be financed by the bank?How much was your total commission if you received a commision of 5.25% based on the suggested retail price of the car from the car dealer and 1.25% incentive from the bank.How much was the interest rate charged by the bank for requiring the buyer to pay the monthly amortization of 34,950 for 5 years?
Your company borrows $300,000 from the investment bank for building upgrades. It agrees for a (5) years loan with annual payment of $45,000 for first four payments, and the final payment on the 5th year should be $170,000. Calculate the annual payment in the first four years, interest rate, and the final payment at year 5. |
Victory Markets, LLC ("VML") has a bank loan with a total principal of $3,800,000. The stated annual interest rate for the loan is 8.40%, and the loan is to be amortized with monthly payments over 6 years. VML wants the bank to change the provisions of the loan such that payments are made on an annual basis. What would be the economically equivalent annual interest rate (i.e., economically equivalent to 8.40% compounded monthly) for a loan with annual payments? 8.6632% 8.7311% 9.0023% 8.5987%
A corporation decides to deposit a fixed payment per quarter into an account earning 9% interest per year, compounded quarterly, in order to create a sinking fund so they will have $125,000 to replace some machinery in 5 years. How much interest does the account earn in the first quarter of year 3? (Enter an answer correct to the nearest cent.).
e investment group borrows $20,000 from a CRDB bank at a 9% annual interest rate in order to buy a machine. In addition. The company pays a $200 loan origination fee when the loan commences. The CRDB bank offers two repayment plans, one with equal payments made at the end of every year for the next five years and the other with a single payment made after the loan period of five years. a)Draw cash flow diagram. b)Describe the repayment plans as required by the CRDB Bank. please do not provide handwritten solution
You decide to purchase a building for $30,000 by paying $5,000 down and assuming a mortgage of $25,000. The bank offers you a 15-year mortgage requiring annual end-of-year payments of $3,188 each. The bank also requires you to pay a 3 percent loan origination fee, which will reduce the effective amount the bank lends to you. Compute the annual percentage rate of interest on this loan.