The interest tax shield has no value when a firm has:
i.no taxable income.II.debt-equity ratio of 1.III.zero debt.IV.no leverage.

Question

Quizplus · Accepted Answer

The interest tax shield refers to the tax savings achieved by a firm through the deduction of interest payments on its debt from its taxable income. If a firm has no taxable income, zero debt, or no leverage, it cannot benefit from the interest tax shield because there are no interest payments to deduct or no income from which to deduct them. The debt-equity ratio does not directly affect the existence of the interest tax shield, but rather its magnitude, assuming there is debt and taxable income.

The Interest Tax Shield Has No Value When a Firm