If the Interest Rate on Debt Is RD, What Adjusted

question 27

Multiple Choice

If the interest rate on debt is rD, what adjusted discount rate should the company use when valuing financial leases? The marginal tax rate is Tc.

• A) rD(1 - Tc)
• B) rDTc
• C) rD
• D) 1 - rDTc

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Definitions:

Income Quintile

A statistical measure dividing the population into five equal groups according to their income level to analyze economic inequality.

Lump-Sum Tax

A tax that is a fixed amount, not varying with the taxpayer’s income level or expenditure, making it independent of the taxpayer’s behavior.

Excise Tax

An excise tax is a tax charged on specific goods and services, such as gasoline, cigarettes, and alcohol, typically to discourage their use or generate revenue.

Benefits Principle

A taxation theory that suggests taxes should be levied according to the benefits received by the taxpayer from government services.