In the question 16.6 of the chapter 16 it is written that since the interest payments are tax deductible which implies debt is subsidized by the state. Please explain how is the debt subsidized?
Debt is being termed as subsidized because if debt is issued then the payable tax will get reduced as the taxable profit will decrease as the debt is tax deductible. So this is said as the government is inturn paying the debt holders.
