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how would a project increase the debt capacity?
And, if it increases the debt capacity how does it impact the tax shield.I am not getting the logic behind it.
If the company is bigger because of taking on a new project then they will be capable of borrowing more money from debt (whether or not they borrow more money immediately or later).
If they are able to borrow more then they will pay more interest and get tax relief on the interest.
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