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Hello Sir ,
I have one question regard the calculation of the tax shield for loan and subsidied loan . Shull we based the calculation on the net amount ( net of issue cost ) or based it on the gross amount . For example if a loan ( net of issue cost ) = 3 million and there is a 3% issue cost which makes a gross amount of loan 3092784 what shull we use to calculate the tax shield ?
Thanks in advance ,
The tax shield is calculated on the interest paid on the amount actually borrowed. SO in your example it would be calculated on 3092784.
Thanks sir for your quick reply,
In Amberle Co Dec 2018 they used the net amount of 80 m to calculate the tax shield .
Please assist
Thanks againNo they have not!!!
They have calculated the tax shield on the amount actually raised which was $150M – $80M from one source and $70M from the other source.
The tax shield occurs because of the interest being paid, and the interest being paid depends on the amount raised!!
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