Since interest is a taxdeductible expense the more debt a co

Since interest is a tax-deductible expense, the more debt a company uses, the higher its value, and the higher the price of its stock, to a certain extent. O True e False

Solution

Correct option is > True

Debt in firm reduced the taxability and enhanced returns for equity. Higher debt doesn’t increase in the PAT numbers but it gives capacity to take more projects at lower cost. Lower cost is achieved due to bringing more debt in to a capital structure. Hence to an extent equity return can keep enhancing if we keep adding debt in capital structure.