Considering you are a CFO of Home Depot Group Office according to the capital structure theories we examined, a firm benefits by having debt since the interest expense is deductible for tax purposes, creating an interest tax shield. The interest tax shield, on the other hand, increases in value the higher the coupon rate on the debt and the higher the tax rate. Ignoring financial distress costs, shouldn't you on behalf of the the Home Depot firm then choose to borrow as much as possible and as high a coupon rate as possible?

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No you should not borrow as much as possible and as high a coupon rate as possible This is because ... View the full answer