The tax benefits of higher leverage may be partially or entirely offset by the higher probability of default associated with an increase in leverage.

Question

Quizplus · Accepted Answer

The statement is true. While higher leverage may provide tax benefits such as higher interest tax deductions, it also increases the risk of default which can result in significant financial losses. Thus, the tax benefits of higher leverage may be offset by the probability of default.

The Tax Benefits of Higher Leverage May Be Partially or Entirely