--%>

How do tax influence the cost of debt and equity

How do tax considerations influence the cost of debt and equity?

Since interest on debt is tax deductible to the issuing firm, the higher the tax rate the lower the after tax cost of debt financing.  Considerations of tax do not enter in the cost of equity calculation as dividends paid to stockholders are not tax deductible to the firm. 

   Related Questions in Managerial Accounting

  • Q : Illustrate the effect of tax on the

    The U.S. market for rice is illustrated below.   The world pric

  • Q : Basic Fortran Project Fortran Project

    Fortran Project This is our last project of the semester. You have freedom to code anyway you like, but make sure to meet the minimum project requirements.&nb

  • Q : Comparative-Advantage Approach to

    We study optimal government debt maturity in a model where investors derive monetary servicesfrom holding riskless short-term securities. In a simple setting where the government is the onlyissuer of such riskless paper, it trades off the monetary premium associated w

  • Q : Cash shortage/overage An income

    An income statement item that represents the difference between the actual cash amount and an accounting measure of how much cash there should be. The most common example exists in a retail situation where the cash in the cash register is compared to the register tape

  • Q : Define Fixed Cost Fixed Cost: The cost

    Fixed Cost: The cost which does not differ in the short term with the volume of action. Fixed cost information is helpful for cost savings by regulating existing capacity, or by removing idle facilities. Also termed as Non-Variable Cost or the Constan

  • Q : Annual report A company's annual report

      A company's annual report is the single most important way for it to convey itself to potential investors. As such, it should be no surprise tha

  • Q : Explain Investor Accounting Investor

    Investor Accounting: It is an individual who commits money to investment products with the hope of financial return. Usually, the primary concern of an investor is to diminish risk whereas maximizing return, as opposed to a speculator, who is willing

  • Q : Define Job Costing Job Costing : It is

    Job Costing: It is an order-specific costing method, utilized in situations where each job is distinct and is executed to the customer's specifications. Job costing includes keeping an account of direct and in-direct costs.

    Q : Describe fluctuating capital of partners

    Describe fluctuating capital of partners? Answer: Partner‘s capital is stated to be fluctuating if capital modifies with every transaction in the capital accou

  • Q : Functions explain how the provision of

    explain how the provision of management accounting information can assist the management of a company with planning, controlling, decision making and communicating