Theo, a recent ESB grad, recently began work at a company that has a very conservative, careful attitude towards debt. In a meeting, Theo told the CEO and CFO that according to the capital structure theories presented in his commerce classes, a company can gain by having debt on its balance sheet because the interest expense is deductible for tax purposes. This creates 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 the firm then choose to pay as high a coupon rate as possible?