What Does the Present Value of the Tax Shield from Debt

question 18

Multiple Choice

What does the present value of the tax shield from debt formula assume?

• A)The interest rate on the debt is less than cost of equity.
• B)The debt will not be replaced when paid.
• C)Interest on the debt is paid only when the debt matures.
• D)The interest is paid semiannually.
• E)The debt is perpetual.

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Definitions:

Methanol

The simplest alcohol, with the formula CH3OH, used as a solvent, antifreeze, fuel, and as a precursor to other chemicals.

C-O Bond

The covalent bond formed between a carbon and an oxygen atom, a fundamental bond in organic chemistry.

Molecular Dipole Moment

A measure of the separation of positive and negative electrical charges within a molecule, affecting its polarity and interactions with other molecules.

Chloroform

Chloroform is a colorless, sweet-smelling organic compound that has been used as a solvent and an anesthetic in the past, now recognized for its environmental and health implications.