A firm has borrowed $400 for ten years at a cost of debt of 10%. Repayment terms require the firm to pay interest annually in each of the next ten years starting next year, and then pay the principal amount at the end of the tenth year. The firm’s tax rate is 25%. 

What is the annual tax break (in dollars) the firm expects to get because of the interest payment? The firm is expected to be very profitable in every future year.

Answer rating: 100% (QA)

To calculate the annual tax break due to interest payments we first n... View the full answer