Although the value of an increase in the interest tax shield may be positive, firms are most apt to restrict borrowing if the:
A) return on the financed project is too high.
B) firm's asset base is largely intangible.
C) firm's asset beta is zero.
D)increased debt decreases the firm's WACC.

Question

Quizplus · Accepted Answer

Firms are most likely to restrict borrowing if their asset base is largely intangible because intangible assets (such as patents, trademarks, and goodwill) provide less collateral for debt than tangible assets. This makes borrowing more risky or expensive, as lenders have less security to fall back on in case of default.

Although the Value of an Increase in the Interest Tax