Question
Under the assumption that KMS's market share will increase by 0.25% per year, you determine that the plant will require an expansion in 2023. KMS's
Under the assumption that KMS's market share will increase by 0.25% per year, you determine that the plant will require an expansion in 2023. KMS's current outstanding debt, the interest on the debt, and the interest tax shield are given in the table below. The expansion will cost $20 million. Assuming that the financing of the expansion will be delayed accordingly (end of 2023), calculate the projected interest payments and the amount of the projected interest tax shields (assuming that KMS still uses a 10-year bond, interest rates remain the same at 6.8%, and KMS's tax rate is 35%) through 2026.
| Current values ($) | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 |
| Outstanding debt before expansion | $4,500,000 | $4,500,000 | $4,500,000 | $4,500,000 | $4,500,000 | $4,500,000 |
| Interest on debt before expansion | $306,000 | $306,000 | $306,000 | $306,000 | $306,000 | $306,000 |
| Interest Tax Shield before expansion | $107,000 | $107,000 | $107,000 | $107,000 | $107,000 | $107,000 |
a. The projected total interest payment per year, beginning in 2024, will be?
b. The interest tax shield per year beginning in 2024 will be?
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Real Estate Finance Theory And Practice
Authors: Terrence M. Clauretie, G. Stacy Sirmans
5th Edition
0324305508, 9780324305500
