单选题
Which of the following statements best describes the effect of an increase in the tax rate on a firm's component costs of capital for debt, preferred stock, and common equity? Debt Preferred stock Common equity A. Decreases No effect No effect B. Decreases Increases Increases C. Increases Decreases Decreases
【正确答案】
A
【答案解析】 Because the interest paid on corporate debt is tax deductible, the after-tax
cost of debt capital is Kd(1-t). An increase in the tax rate results
in a decrease in the after-tax cost of debt capital. For example, if the yield
to maturity on a firm's debt is 9% and the tax rate is 35%, the after-tax cost
of debt capital is 0.09×(1-0.35)=0.0585=5.85%. If the tax rate increases to 45%
, the after-tax cost of debt capital becomes 0.09×(1-0.45)=0. 0495=4.95%.
Payments to a firm's preferred or common shareholders are not tax deductible, so
changes in the tax rate do not change a firm's component costs of capital for
preferred stock or common equity.