A company issued $1,000,000 of 10% notes that resulted in interest expense of $100,000 per year. What is the company's net cash outflow if the effective tax rate is 40%?
A)$100,000
B)$ 60,000
C)$ 40,000
D)$160,000

Question

Quizplus · Accepted Answer

The interest expense is $100,000, and with a 40% tax rate, the tax savings is $40,000 ($100,000 * 40%). Therefore, the net cash outflow is $60,000 ($100,000 - $40,000).

A Company Issued $1,000,000 of 10% Notes That Resulted in Interest