Final answer:
The tax shield from debt is least useful to firms with negative earnings before tax (EBT) as there is no taxable income to be reduced by the tax shield. The correct option is c) Negative earnings before tax (EBT).
Step-by-step explanation:
Concerning the tax shield provided by debt, the situation in which it will be of the least use to firms is when negative earnings before tax (EBT) are present. The tax shield benefits companies because the interest payments on debt reduce taxable income, thereby reducing taxes owed.
However, if a company has negative EBT, there is no taxable income to reduce, and the tax shield provides no immediate benefit. The firm cannot use the tax shield to lower its tax bill if it is not generating taxable income in the first place.
In comparison, high net income, even with high levels of debt, would still mean that the company could benefit from the tax shield, as there would be significant taxable income to reduce.
Losses carried forward could eventually provide a tax benefit as well when they offset future taxable income; however, this is deferred usage rather than an immediate benefit. The correct option is c) Negative earnings before tax (EBT).