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sergij07 [2.7K]
3 years ago
14

An increase in a levered firm’s tax rate will:

Business
1 answer:
svet-max [94.6K]3 years ago
4 0

Answer:

B, decrease the firm's cost of capital

Explanation:

When the tax rate of a levered firm is increased, there is a decrease in the firm's cost of capital because the value of a levered firm is the sum of the market value of the firm's debt and its equity.

An increased tax rate means it has a greater debt and as such the firm's capital after settling tax debt is very reduced.

I hope this helps. Cheers.

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