Would business taxes make borrowing better or worse

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Question - Business debt is MUCH different than personal debt. Overall, the payments should be more than offset by the income, and this is true either way. If we can finance 100% of an investment, and our monthly cash inflow from that investment is more than the monthly cash outflow (principal and interest), we will have a greater return. Assume we invest $10 and borrow $90 versus investing $20 and borrowing $80. Either way the inflow is $20 per month and the outflow is $9 or $8 depending on our borrowing and ignoring taxes. So, our net is either 11/10 or 12/20. As a percentage return the first is far better than the second. Therefore, investors in business prefer debt. Would business taxes make borrowing better or worse for investors?

Reference no: EM133151395

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