Which of the Following Is NOT a Factor Offsetting the Tax

question 52

Multiple Choice

Which of the following is NOT a factor offsetting the tax advantage of debt as a source of financing?

• A) increased agency costs
• B) increased probability of financial distress (bankruptcy) due to fixed interest payments
• C) alternative tax shields to those supplied by interest payments
• D) All of the above offset the tax advantage of debt as a source of financing.

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Definitions:

Real Interest Rate

The interest rate that has been adjusted for inflation, showing the real cost of funds to the borrower and the real yield to the lender.

Social Security

A government program designed to provide financial assistance and support to people with inadequate or no income, primarily the elderly, disabled, and families with dependent children.

Inflation

The quickening in the standard cost evaluation for goods and services, wearing down the strength to purchase.

CPI

Consumer Price Index, a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to estimate inflation.