is the tax shield to blame for the problems with credit

Discussion in 'Economics' started by morganist, Mar 29, 2009.

  1. morganist

    morganist Guest

    yeah sorry i got the capm and the wacc in the wrong order. the reason that i raised it as a point is that a political party in my country is adopting a debt management mechanism in a bid to control the level of debt in companies. my point being if that happens the tax shield would create problems as there is an incentive to increase debt over equity in many cases.

    also the wacc (not the capm, my error) can be used to calculate investment decisions. thus if a credit crunch occurs if there is a higher level of debt due to the tax shield it could affect equity. investment bankers do look at capital structure before putting money in the ones i know even physically go to the company.

    anyway thank you for your comments and also putting me right on the wacc and capm.
     
    #11     Mar 30, 2009