The discount rate on the interest tax shield when a firm retains a target leverage ratio. Introduction: An interest tax shield is a deduction in taxable income for a corporation or individual achieved through claiming deduction like depreciation , charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer. A leverage ratio is one of financial capacities that brings capital to a firm in the form of debt or assesses the ability of a firm to meet its financial obligations. The leverage ratio is important because the company can know the amount of debt it holds and it is useful in evaluating whether a firm can pay off its debt.

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Chapter 18.3, Problem 2CC

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To discuss: The discount rate on the interest tax shield when a firm retains a target leverage ratio.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or individual achieved through claiming deduction like depreciation, charitable donations, and mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

A leverage ratio is one of financial capacities that brings capital to a firm in the form of debt or assesses the ability of a firm to meet its financial obligations. The leverage ratio is important because the company can know the amount of debt it holds and it is useful in evaluating whether a firm can pay off its debt.

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