The interest tax shield has no value for a firm when the
I.tax rate is equal to zero.
II.debt-equity ratio is exactly equal to 1.
III.firm is unlevered.
IV.firm elects an all-equity capital structure.
A)I and III only
B)II and IV only
C)I,III,and IV only
D)II,III,and IV only
E)I,II,and IV only

Question

Quizplus · Accepted Answer

The interest tax shield has no value when the tax rate is zero, the firm is unlevered, or the firm has an all-equity capital structure, as there is no interest expense to shield from taxes.

The Interest Tax Shield Has No Value for a Firm