The interest tax shield has no value for a firm when the debt-equity ratio is exactly equal to 1.

Name: The interest tax shield has no value for a firm when the debt-equity ratio is exactly equal to 1.
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Quizplus · Accepted Answer

The value of the interest tax shield is derived from the tax deductibility of interest payments, not directly from the debt-equity ratio. A firm with a debt-equity ratio of 1 can still benefit from the interest tax shield if it has taxable income against which the interest can be deducted.

The Interest Tax Shield Has No Value for a Firm