Question

Generally debt is considered to be cheaper than equity because of tax advantages. What are the condition in which a firm should go for higher amount of debt to reap the benefits of tax?

Answer 1

A situation in which a debt is difficult or impossible to repay, typically because high interest payments prevent repayment of the principal. An incentive structure that lures individuals into accepting long-term debt obligations under conditions that strongly favor the lender. Victims of debt traps are often prevented from discharging the debt through techniques such as unusually high or variable interest rates, changing payment plans, and unreasonably high penalties for late payments.