Question

14. How do taxes affect the choice of debt versus equity?

Answer 1

There are two types of financing in market one is Equity finance and other is Debt Finance. interest on debt finance is and deductible expenses as interest expenses. It means there is no taxes payable on interest expenses.

Other side Equity finance is dividend expenses which are payable from retained earning and no tax deductible on dividend expenses.

So due to this tax affect choices of debt versus equity due ti tax deductible in Debt finance and no tax on deductible on equity finance.