The Interest Tax Shield Is a Key Reason Why

question 147

Multiple Choice

The interest tax shield is a key reason why:

• A) The required rate of return on assets rises when debt is added to the capital structure.
• B) The value of an unlevered firm is equal to the value of a levered firm.
• C) The net cost of debt to a firm is generally less than the cost of equity.
• D) The cost of debt is equal to the cost of equity for a levered firm.
• E) Firms prefer equity financing over debt financing.

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Definitions:

Limbic System

A complex system of nerves and networks in the brain, involved in the control of behavior and the formation of emotions.

Lateral Geniculate

A part of the thalamus that acts as a primary processing center for visual information received from the retina.

Dentate Gyrus

A part of the hippocampus involved in memory formation, thought to contribute to the generation of new memories.

Internal Carotid Arteries

Major arteries located on either side of the neck that supply blood to the brain, eyes, and parts of the face and scalp.