Which one of these should be the primary appeal of unused debt capacity to a bidder firm?
A)Ability to borrow additional funds to increase management bonuses
B)Source of funding for negative net present value projects
C)Increased funding for the payment of unsustainable dividends
D)Tax savings resulting from increased interest expense on additional debt
E)Debt funding for a golden parachute

Question

Quizplus · Accepted Answer

The primary appeal of unused debt capacity for a bidder firm is the tax savings resulting from increased interest expense on additional debt. By increasing the amount of debt in their capital structure, the bidder firm can increase their interest payments and consequently, reduce their taxable income. This can lead to significant tax savings for the bidder firm. The other options listed are not financially sound reasons for a bidder firm to utilize unused debt capacity.

Which One of These Should Be the Primary Appeal of Unused