Sea Lion Shores hit a rough patch due to a worldwide pandemic. The business is likely...
Sea Lion Shores hit a rough patch due to a worldwide pandemic. The business is likely to borrow more money if
A) tax rates increase
B) the interest rate on debt increases
C) The tax rates decrease
D) the bond falls from AAA to BBB.
Homework Answers
The interest which are payable on corporate bonds are tax deductible in nature so when there would be a high rate of taxation on bonds, the deduction will be higher for the company and it will be leading to overall decrease in the cost of capital so even after the pandemic the company will be likely to borrow more money if the tax rate will be increasing, because it will lead to higher deduction and decreasing the cost of debt and cost of capital
All the other options regarding borrowing more money are false.
Correct answer will be option (A) Tax rate Increase
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Sea Lion Shores hit a rough patch due to a worldwide pandemic.
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