--%>

How do tax influence the cost of debt and equity

How do tax considerations influence the cost of debt and equity?

Since interest on debt is tax deductible to the issuing firm, the higher the tax rate the lower the after tax cost of debt financing.  Considerations of tax do not enter in the cost of equity calculation as dividends paid to stockholders are not tax deductible to the firm. 

   Related Questions in Managerial Accounting

  • Q : Describe a join between tables Describe

    Describe a join between tables?

  • Q : Influence of managers

    Write down a short note on the influence of manager’s behavior in management accounting information?

  • Q : Capital gain The increase in value that

    The increase in value that the owner of a capital asset receives when the asset is sold. The owner pays tax on that gain or increases, at a lower rate if the assets that are sold are capital asset, such as factory buildings, rather than assets that are sold in the nor

  • Q : Reasons for favoring partnership deed

    Give reasons in favor of having a partnership deed. Answer: A) In situation of any dispute or doubt, Partnership deed is the gui

  • Q : Define Activity Activity : The real

    Activity: The real work task or step executed in generating and delivering products and services. The aggregation of actions executed within an organization which is helpful for the purpose of activity-based costing.

  • Q : Define Capital Budgets Capital Budgets

    Capital Budgets: The procedure of finding out which potential long-term projects are value undertaking, by comparing their estimated discounted cash flows with their internal rates of return. Capital Budget is the

  • Q : Industry and your accounting place How

    How have you observed the regulations which affect both your industry and your accounting place?

  • Q : Define Responsibility Center

    Responsibility Center: It is an organizational unit headed by the manager or a group of managers who are responsible for its actions. The responsibility centers can be measured as revenue centers (that is responsible for revenue or sa

  • Q : Aging of Accounts What are Aging of

    What are Aging of Accounts? Briefly illustrate it.

  • Q : Break-even point The operating level at

    The operating level at which the total sales revenue equals the total cost. Total sale revenue is equal to the price per unit times the number of units sold. Total cost equals total variable cost, the number of units sold in time the variable cost per unit and the tot