Managers should make use of the interest tax shield if a firm has ________.
A) consistent taxable income
B) volatility in taxable income
C) consistent dividend payments
D) low tax rates

Question

Quizplus · Accepted Answer

Managers should make use of the interest tax shield if a firm has consistent taxable income, as this allows for predictable tax savings from the deduction of interest expenses from taxable income. Volatility in taxable income may make it difficult to predict the tax savings from the interest tax shield, making it a less reliable strategy. Consistent dividend payments and low tax rates are not directly related to the effectiveness of the interest tax shield.

Managers Should Make Use of the Interest Tax Shield If