Which of the Following Statements Are Correct

question 100

Multiple Choice

Which of the following statements are correct?

• A) The tax deductibility of debt becomes more important to firms with large non-debt tax shields such as foreign tax credits granted by the U.S. government to firms that pay taxes to foreign governments.
• B) As the debt/total asset ratio falls, or as earnings become less volatile, the firm will face lower borrowing costs, driven down by bond investors requiring lower yields to compensate for less risk.
• C) The static tradeoff hypothesis states that firms will balance the advantages of equity (its lower cost and tax-deductibility of dividends) with its disadvantages (greater possibility of bankruptcy and the value of explicit and implicit bankruptcy costs).
• D) Agency costs increase the optimal level of debt financing for a firm above the level that would be appropriate if agency costs were zero.

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Definitions:

Technological Development

The process of research, innovation, and application of technology or techniques to improve products, processes, or services.

European Union

A political and economic union of 27 European countries that are tied by a common market and numerous regulatory measures.

Ethnoculturalism

The advocacy or emphasis on the distinct characteristics and significance of a particular ethnicity or culture within a society.

Multiculturalism

The presence or support for the coexistence of diverse cultures, including racial, religious, or cultural groups within a society.