--%>

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 : Liability of partners Liability of

    Liability of partners: A) Under contract law: Liability is joint only (collectively); The creditor has only one right of action (except in NSW, where liability is now joint and several).

  • Q : Federal budget Choose the right answer

    Choose the right answer from following. Which one did not contribute to the large Federal budget deficits in the year of 2002 and 2003? A) spending on the wars in Afghanistan and Iraq. B) low interest rates. C) Federal tax cuts. D) the recession of 2001 and its afterm

  • Q : Ravenna Please see attached. Do tutors

    Please see attached. Do tutors provide assistance as to how they came about their answers?

  • Q : Budgetary accounts Accounts used in

    Accounts used in governmental accounting to record the budget amounts but not the actual amount. For example, at the beginning of the accounting period, the planned amount of tax revenue, revenue from license, and inflows from fines would be recorded as one amount in

  • Q : Define the term Strategic management

    Briefly define the term Strategic management and also state the reason why it is designed?

  • Q : The provision of management accounting

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

  • Q : Deficiency of a partnership deed In the

    In the deficiency of a partnership deed, how are mutual relations of partners managed? Answer: In the absence of Partnership deed, the mutual relations are managed b

  • Q : Selecting strategic options and

    Write a short note on selecting strategic options and formulating the plans?

  • Q : Insurance premium in Arrears What are

    What are the Insurance premium in Arrears?

  • Q : Illustrate the effect of tax on the

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