According to M&M Proposition I with Taxes, the Interest Tax

question 6

Multiple Choice

According to M&M Proposition I with taxes, the interest tax shield:

• A) Affects the net earnings, but not the value of a firm.
• B) Increases the pre-tax rate of return on debt.
• C) Increases the value of a firm.
• D) Lowers the firm's cost of equity.
• E) Increases the firm's weighted average cost of capital.

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Definitions:

Noncumulative

Pertains to dividends that, if missed by a company, are not required to be paid out to shareholders in the future.

Diluted Earnings Per Share

A calculation of earnings per share that includes potential shares from convertible securities, providing a "worst-case" scenario of earnings per share.

Basic Earnings

The amount of profit attributable to shareholders before deductions for preferred dividends, calculated on a per-share basis.

Continuing Operations

The portions of a business’s activities expected to continue for the foreseeable future, as opposed to activities that are being discontinued or phased out.