Tax shield on loan or subsidised loan

AAsma6y ago

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 ,

John MoffatTutor6y ago#1

The tax shield is calculated on the interest paid on the amount actually borrowed. SO in your example it would be calculated on 3092784.

AAsma6y ago#2

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 again

John MoffatTutor6y ago#3

No 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!!

AAsma6y ago#4

Ok now clear , thanks alot !

John MoffatTutor6y ago#5

You are welcome :-)

This topic is locked — no new replies.