The interest tax shield has no value for a firm when the:
I.the tax rate is equal to zero.
II.the debt-equity ratio is exactly equal to 1.
III.the firm is unlevered.
IV.a firm elects an all-equity capital structure.
A)I and III only
B)II and IV only
C)I,III,and IV only
D)II,III,and IV only
E)I,II,and IV only

Question

Quizplus · Accepted Answer

The interest tax shield has no value when the tax rate is zero (I), the firm is unlevered (III), or when a firm chooses an all-equity capital structure (IV), as there is no interest expense to shield from taxes.

The Interest Tax Shield Has No Value for a Firm