Question

Other things remaining the same, an increase in the tax rate on corporate profit will : 

Options

• make the debt relatively cheaper

• make the debt relatively the dearer

• have no impact on the cost of debt

• we can't say

Answer 1

make the debt relatively cheaper

Explanation - 

When the tax rate on corporate profits is raised, the debt becomes more affordable. This is due to the fact that interest due to debtors is deducted from total income before the tax value is calculated. When a result, as the value of taxes rises, the debt becomes more affordable.