Asked by
Destiny Townley
on Nov 07, 2024
Verified
When taxes are factored in, debt financing creates positive value in the form of an interest tax shield.
Debt Financing
Raising capital through the sale of bonds, bills, or notes to individuals or institutions, which must be repaid over time with interest.
Interest Tax Shield
The reduction in income taxes that results from the deductibility of interest payments.
- Grasp the impact of debt financing on a firm's value and the cost of capital when taxes are considered.
Verified Answer
SH
Learning Objectives
- Grasp the impact of debt financing on a firm's value and the cost of capital when taxes are considered.