dontknow1987

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MFIN--- Wrote:

> How does the interest payment having nothing to do
> with taxes? You're last two paragraphs perfectly
> explains what I wrote, as well as contradicting
> your first comment...
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The company has to make a payment of $1M to the bank. This Cash outflow will always remain $1M irrespective of whether the tax rate is 40% or 50%.


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MFIN--- Wrote:

> Interest on debt is tax deductable...how else
> would a firm save on taxes if it's not through the
> income statement? Come on....Look back to the
> original question "after-tax cost of debt in
> WACC)

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Now the amount of $1M that the company paid to the bank, will be tax-deducted in the income statement of the firm. If the tax rate is 40%, the firm will save 400K in taxes and if the tax rate is 50%, it will save 500K in taxes.

But it still has to pay $1M in cash to the bank.
That is why I said, the payment to the bank and saving from taxes are two different calculations.