The interest tax shield has more value when the amount of debt is _____ and the tax rate is _____.
A) Low; zero.
B) Low; high.
C) High; zero.
D) High; high.
E) Low; low.

Question

Quizplus · Accepted Answer

The interest tax shield refers to the tax saving achieved by deducting interest payments before calculating taxable income, which reduces the total tax payable. Its value increases with both the amount of debt (since more interest is deductible) and the tax rate (since the savings from each dollar of interest deducted are greater).

The Interest Tax Shield Has More Value When the Amount