how do tax considerations affect the cost of debt


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

For the reason that interest on debt is tax deductible to the issuing firm, the higher the tax rate the lower the following tax cost of debt financing.  Tax considerations don't enter into the cost of equity computation since dividends paid to stockholders aren't tax deductible to the firm. 

 

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Financial Management: how do tax considerations affect the cost of debt
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