--%>

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 : Define Partnership deed Partnership

    Partnership deed: Partnership deed is a written agreement including the terms and conditions agreed by all the Partners.

  • Q : Define Avoidable Cost Avoidable Cost :

    Avoidable Cost: The cost related with an activity which would not be acquired if the activity were not executed.

  • Q : Aging of Accounts What are Aging of

    What are Aging of Accounts? Briefly illustrate it.

  • 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 : Determining costs and benefits in

    Write down a short note on determining costs and benefits in decision making process?

  • Q : What are Arrears What are Arrears ? And

    What are Arrears? And what are the conditions to make Arrears?

  • Q : Explain Performance Measurement

    Performance Measurement: A means of computing effectiveness, efficiency, and outcomes. A balanced performance measurement score-card comprises financial and non-financial measures focusing on the quality, cycle-time, and price. The performance measure

  • Q : What is Partnership Partnership :

    Partnership: Whenever two or more persons enter into an agreement to take on business and share its gain and losses, it is a condition of partnership. It can also define as: "Partnership is the relation among persons and who have granted to share the

  • Q : Explain Full-Absorption Costing

    Full-Absorption Costing: It is a technique of costing that assigns (or absorbs) all labor, material, and service or manufacturing facilities and support costs to products or another cost objects. The costs assigned comprise those which do and do not d

  • Q : Adjunct account An account in financial

      An account in financial reporting that increases the book value of a liability account. An adjunct account is a valuable account from which cred