Question

Other things remaining the same, an increase in the tax rate on corporate profits will:
a. make the debt relatively cheaper
b. make the debt relatively the dearer
c. have no impact on the cost of debt
d. we can't say

Answer 1

Answer:

Other things remaining the same, an increase in the tax rate on corporate profits will :  make the debt relatively cheaper  

 

Among the given options option (a)  make the debt relatively cheaper  is the correct answer.

Explanation:

Since, interest is a  deductible expense, cost of debt is affected by tax rate. If tax rate is higher, debt financing become more attractive.

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Here are more questions of the same chapter :  

The cheapest source of finance is:

a. debenture            b. equity share capital

c. preference share d. retained earning

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A decision to acquire a new and modern plant to upgrade an old one is a:

a. financing decision  

b. working capital decision  

c. investment decision

d. None of the above  

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Answer 2

Answer:

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