Asked by Darian Clark on Jun 25, 2024
Verified
A reduction in tax rates will tend to diminish the benefit of the interest tax shield.
Tax Rates
The segment of earnings an individual or corporate entity owes to the government in taxes.
Interest Tax Shield
The saving in taxes due to deductible interest expenses, which reduces taxable income and ultimately decreases the tax liability.
- Acquire insight into how tax rates, tax shields, and decisions on capital structure intersect.
Verified Answer
FR
Fisko RenandiJun 27, 2024
Final Answer :
True
Explanation :
A reduction in tax rates decreases the value of the interest tax shield because the shield is directly proportional to the tax rate; lower tax rates mean less tax savings from deducting interest expenses.
Learning Objectives
- Acquire insight into how tax rates, tax shields, and decisions on capital structure intersect.
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