if both the tax rate & interest rate is 10%. then from where the company r

if both the tax rate & interest rate is 10%. then from
where the company raise fund from debt or equity.
and which one is more suitable.

Question Posted / anand

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if both the tax rate & interest rate is 10%. then from where the company raise fund from debt ..

Answer / siddhartha bhattacharjee

Debt capital is more suitable as it gives "TAX shild", i.e,
before calculating tax for a company the interest bearing
to debt capital is deducted which minimizes the taxable
income of the firm leading to lesser tax paid by the
compnay, where as if we use equity capital, divident is
paid from PAT so tax burden on the firm is larger.

Hence debt capital is always cheaper source of finance.

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if both the tax rate & interest rate is 10%. then from where the company raise fund from debt ..

Answer / amod kumar

debt is always considered as a cheaper source of finanace,
but this statement is correct only when company rate of
earning after adjustind tax is more than the fixed rate of
interest which is to be paid to debt holders. if company
earning is less than the debt rate, from where co will pay
the interst.

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if both the tax rate & interest rate is 10%. then from where the company raise fund from debt ..

Answer / dayal singh

Equity

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2 No

if both the tax rate & interest rate is 10%. then from where the company raise fund from debt ..

Answer / anuj

Debt ang equity to raised is Rs 500
let income is Rs 100 ( When debt is raised )
intrest(-) 50
so, Tax (-) 5
PAT = 45
When equity is raised
intrest(-)0
Tax 50
PAT = 50 so,answer is equity option is better

Is This Answer Correct ?

4 Yes

10 No

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