Total After tax cash Cash outflows Tax shields deductions outflows= Cash Year =Interest + Depreciation Interest =Deductions =Depr + outflows- Deductions Principal repaid 0.35 Interest after tax 1 1734000 1275000 459000 1734000 693600 1040400

Entrepreneurial Finance
6th Edition
ISBN:9781337635653
Author:Leach
Publisher:Leach
Chapter7: Types And Costs Of Financial Capital
Section: Chapter Questions
Problem 2aM
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How did you compute the tax shield? because when I multiply the total dedcution with the rate, it gives me a different answer. 

Step 4
Total
After tax cash
Cash outflows
Tax shields
deductions
outflows= Cash
Year =Interest +
Depreciation
Interest
=Deductions *
=Depr +
outflows- Deductions
Principal repaid
0.35
Interest
after tax
1
1734000
1275000
459000
1734000
693600
1040400
1619250
1275000
344250
1619250
647700
971550
3
1504500
1275000
229500
1504500
601800
902700
4
1389750
1275000
114750
1389750
555900
833850
3748500
Transcribed Image Text:Step 4 Total After tax cash Cash outflows Tax shields deductions outflows= Cash Year =Interest + Depreciation Interest =Deductions * =Depr + outflows- Deductions Principal repaid 0.35 Interest after tax 1 1734000 1275000 459000 1734000 693600 1040400 1619250 1275000 344250 1619250 647700 971550 3 1504500 1275000 229500 1504500 601800 902700 4 1389750 1275000 114750 1389750 555900 833850 3748500
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