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Assuming an expected increase in tax rate, what is the preferred way of financing?

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Question ajoutée par Abdullah Mahhaden, CFA, CPA , Assurance Manager , Grant Thornton
Date de publication: 2013/06/15
ATIF KHALIL
par ATIF KHALIL , Finance Director , Wavetec Group of Companies

If tax rates are expected to increase then preferred way of financing would be debt financing not equity.......cost of debt is interest which is always allowable expense in tax which creates tax savings.....whereas cost of equity is distribution of profit after tax which means that higher tax would have been deducted before providing any benefit to the equity holders.....

Muhammad Afaq
par Muhammad Afaq , SENIOR FINANCIAL ACCOUNTANT , United Eddy Company (United Yousef M. Naghi Group)

in such situation, the preferred way of financing is from equity rather than debt.
that is equity financing.
In this case, your profit(or earning) and tax shield both move in up ward direction.

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