All Else the Same, Which of the Following Is True

question 195

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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