All Else the Same, Which of the Following Is True

question 271

Multiple Choice

All else the same, which of the following is true about the interest tax shield of a firm with positive EBIT?

• A) The higher the corporate tax rate, the less valuable the interest tax shield.
• B) If the firm dramatically increases its depreciation expense, it may have more of a need for an interest tax shield.
• C) The interest tax shield becomes more valuable as the size of the debt load increases.
• D) The interest tax shield increases as a firm reduces its level of outstanding debt.
• E) Since the interest tax shield is valuable, the firm would rather pay a high coupon rate on its bonds than a low coupon rate.

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Definitions:

Statistical Analysis

The process of collecting, examining, interpreting, and presenting data through mathematical theories and formulas.

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Research approach combining quantitative and qualitative methods to gather and analyze data.

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Systematic procedures, techniques, or modes of inquiry employed in the study or investigation of phenomena.

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