Other things being equal,as the tax deductibility of depreciation on assets increases:
A)the firm borrows more.
B)the firm borrows less.
C)there will be no effect on the firm's borrowings.
D)the firm's effective tax rate decreases.

Question

Quizplus · Accepted Answer

As the tax deductibility of depreciation on assets increases, the firm's taxable income decreases. This lowers the tax bill, and as a result, the firm needs to borrow less. Therefore, the firm borrows less when tax deductibility of depreciation on assets increases.

Other Things Being Equal,as the Tax Deductibility of Depreciation on Assets