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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.
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Answer Posted / 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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