According to the capital structure theories we examined, a firm benefits by having debt since the interest expense is deductible for tax purposes, creating an interest tax shield. The interest tax shield, on the other hand, increases in value the higher the coupon rate on the debt and the higher the tax rate. Ignoring financial distress costs, shouldn't the firm then choose to pay as high a coupon rate as possible?

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The Answer of According to the capital structure theories we examined, a firm benefits by having debt since the interest expense is deductible for tax purposes, creating an interest tax shield. The interest tax shield, on the other hand, increases in value the higher the coupon rate on the debt and the higher the tax rate. Ignoring financial distress costs, shouldn't the firm then choose to pay as high a coupon rate as possible?

According to the Capital Structure Theories We Examined, a Firm