Granting a Tax Deduction for Corporate Interest Enables Financial Leverage

question 50

Multiple Choice

Granting a tax deduction for corporate interest enables financial leverage to increase a firm's value by:

• A)increasing EBIT.
• B)decreasing the lender's share of EBIT.
• C)decreasing the government's share of EBIT.
• D)b and c

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Definitions:

Break-Even

The moment when total income matches total expenses, creating a situation with neither profit nor loss.

Unit Sales

The quantity of products sold by a company in a given period.

Variable Expense

Costs that fluctuate in direct proportion to changes in an organization's activity level or volume of output, such as raw material costs.

Target Profit

The desired net income a business aims to achieve within a specific period, often used for setting sales targets or pricing strategies.