We can say that the interest tax shields are the tax benefits from the financial structure of a company. For instance, taking a loan rather than issuing equity increases the tax shield as interest on a loan is tax-deductible while dividend paid on equity is not. So, in a way, interest ...
In calculation of net present value, interest tax shield is typically not reflected in net cash flows rather it is adjusted by multiplying the cost of debt with (1 – tax rate) in the weighted-average cost of capital. This is why we multiply cost of debt (kd) with (1 – t) when ...
2. Operating Income Calculation (EBIT) 3. Times Interest Earned Ratio Calculation Example How to Calculate Times Interest Earned Ratio (TIE) The times interest earned ratio (TIE) compares the operating income (EBIT) of a company relative to the amount of interest expense due on its debt obligat...
Received 4 December 2009 Accepted 11 December 2009 Available online 23 December 2009 JEL classification: G11 G3 Keywords: Capitalized interest WACC APV Interest tax shield Capitalization a b s t r a c t This paper shows how to value investment projects involving capitalization of interest costs ...