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Without​ leverage, Impi Corporation will have net income next year of $ 4.5 million. If​ Impi's...

Without​ leverage, Impi Corporation will have net income next year of $ 4.5 million. If​ Impi's corporate tax rate is 21 % and it pays 8 % interest on its​ debt, how much additional debt can Impi issue this year and still receive the benefit of the interest tax shield next​ year? (Note: Assume​ Impi's revenues exceed $ 25 ​million, and that interest tax deductions are limited to 30 % of EBIT under the​ TCJA.)

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Expert Solution

Note: Debt interest rate is fixed i.e. 8% and tax rate is 21%, interest tax deduction is less than 30%, so first answer is more appropriate as in second case it is assumed that debt is 9% to fulfill the condition given in the question.

jeff jeffy answered 1 year ago
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