How does the federal income tax affect US businesses' choice of financing (use of debt vs equity)?

Answer 1

Debt - Interest payments are tax deductable
Equity - Dividend payments are not tax deductable

Answer 2

a million. because of the fact interest on debt is tax deductible for the business employer, bigger company tax rates advise that the cost of the tax preserve from the deduction is greater powerful. 2. If individual tax rates on dividend earnings are bigger, then reinvesting earnings particularly of borrowing money to take a position, could effect in an business enterprise making use of greater fairness than is optimum.