Creating an interest tax shield

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Reference no: EM132004323

As per the capital structure theories, the companies can benefit by having debt since the interest expense is deductible for tax purposes, creating an interest tax shield. The interest tax shield, on the other hand, increases in value the higher the coupon rate on the debt and the higher the tax rate. Ignoring financial distress costs, Why or Why not the company then choose to pay as high a coupon rate as possible?

Reference no: EM132004323

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