Although the Value of an Additional Interest Tax Shield May

question 63

Multiple Choice

Although the value of an additional interest tax shield may be positive,firms may restrict borrowing if:

• A) the returns on the project are too high.
• B) their asset base is largely intangible.
• C) their asset beta is zero.
• D) the borrowing increases their WACC.

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Definitions:

Theory Perseverance Effect

The phenomenon where beliefs persist even after the evidence supporting them has been discredited or debunked.

Thinking About Thinking

The process of reflecting on one's own thought patterns, beliefs, and cognitive processes; also known as metacognition.

Correspondence Bias

The tendency to draw inferences about a person's unique and enduring dispositions from behaviors that can be entirely explained by the situations in which they occur.

External Attributions

The process of assigning the cause of behavior to situational factors outside the individual, rather than internal characteristics.