The interest tax shield is a key reason why:
A)the net cost of debt to a firm is generally less than the cost of equity.
B)the value of an unlevered firm is equal to the value of a levered firm.
C)the required rate of return on assets rises when debt is added to the capital structure.d.the cost of debt is equal to the cost of equity for a levered firm.
D)firms prefer equity financing over debt financing.

Question

Quizplus · Accepted Answer

The interest tax shield allows firms to deduct interest payments from their taxable income, resulting in a lower tax burden. This lowers the net cost of debt to a firm, making it generally less expensive than the cost of equity.

The Interest Tax Shield Is a Key Reason Why