If the firm issues debt, the interest write-offlowers the cost of debt. True False

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If the firm issues debt, the interest write-offlowers the cost of debt. True False

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Answer 1

Answer #1

FALSE.

If the firm issues debt, the interest write -off reduces the amount of taxes paid hence lowers the taxable income and hence increases the net income. It does not lowers the cost of debt. The cost of debt is lowest among equity, debt and preference capital.

So, the correct option is option B.

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Answer 2

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