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:

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, frequently used in statistics to gauge the spread of a dataset.

Random Sample

A subset of individuals chosen from a larger set where each individual has an equal chance of being selected, designed to represent the larger group.

Waiting Time

The period between a request or need for service and the actual provision of that service, often analyzed in queue theory and service operations.

Standard Deviation

Standard deviation is a measure of the amount of variation or dispersion of a set of values, indicating how much the values in a data set differ from the mean.