Answer:
a.
Particulars | Amount | Explanation | |
1 | Before tax interest expense | $30,240 | $432000*7% All deductible |
2 | Marginal tax rate | 32% | |
3 | Tax Savings from interest expense | 9,677 | 1 x 2 |
After tax cost of interest expense | $20,563 | 1 - 3 |
b.
$30,240
Because rental payments are not deductible they do not generate any
tax savings, so the before- and after tax cost of the rental
payments is the same.
c.
Particulars | Amount | Explanation | |
1 | Before tax interest expense | 30,240 | $432000*7%. All deductible |
2 | Standard deduction | 24,400 | Married File Joint Return 2019 |
3 | Interest in excess of standard deduction | 5,840 | 1 - 2 |
4 | Marginal tax rate | 32% | |
5 | Tax savings from interest expense | 1,869 | 3 x 4 |
After tax cost of interest expense | $28,371 | 1 - 5 |
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