Please answer this very fast??very very fast
Dear Student,
a) I will opt for debt to raise the required amount of capital.
Reason -
1) When Interest coverage ratio ratio is higher, there is a lesser degree of risk pertaining to the failure of interest payment obligation.
2) Higher the tax rate cheaper will be the cost of debt, because interest on debt is tax deductible expense.
b) The shareholders of the company are likely to gain from the issue of debt by the company because the return on investment is higher. It helps a company to take advantage of trading on equity to increase the earnings per share.
Regards
a) I will opt for debt to raise the required amount of capital.
Reason -
1) When Interest coverage ratio ratio is higher, there is a lesser degree of risk pertaining to the failure of interest payment obligation.
2) Higher the tax rate cheaper will be the cost of debt, because interest on debt is tax deductible expense.
b) The shareholders of the company are likely to gain from the issue of debt by the company because the return on investment is higher. It helps a company to take advantage of trading on equity to increase the earnings per share.
Regards