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Also, companies that borrow money to finance stock purchases (eg Apple) also save on their taxes because interest expense on debt is tax deductible.

• JDDunn9 11y ago
  Expensing interest only saves you the total interest x interest rate. So they just get a 35% discount on their interest rate.
  • howlingfantods 11y ago
    You're absolutely right that the savings on interest is post tax. However the tax deductibility of interest creates a substantial tax shield and in general, has a net positive value for the company since changing the capital structure by increasing debt decreases the weighted average cost of capital. Studies suggest that debt, because of the deductibility of interest, on average leads to ~1 dollar of additional company value for every 10 dollars of debt financing (vs equity financing).
  • sokoloff 11y ago
    Total interest * [marginal] tax rate, not times interest rate. (I give you credit for knowing the difference, but not every reader will know the difference, so I'm trying to help them, not nitpick you.)