When a Corporation Issues Permanent Debt, the Value of All

question 68

Multiple Choice

When a corporation issues permanent debt, the value of all its securities:

• A) increases by the present value of the tax shield.
• B) decreases by the present value of the tax shield.
• C) increases by the annual interest tax shield.
• D)decreases by the annual interest tax shield.

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Definitions:

Alderfer's ERG Theory

A motivational theory that categorizes human needs into three groups: Existence, Relatedness, and Growth, proposing that people can be motivated by needs in more than one group at a time.

Maslow's Hierarchy

A psychological theory positing a five-tier model of human needs, ranging from basic (physiological) needs to higher (self-actualization) needs.

Diminishing Marginal Product

The decrease in the additional output produced when one more unit of input is added, keeping all other inputs constant.

Average Total Cost

The cost for each unit produced, found by taking the total cost of producing goods and dividing it by the output quantity.