Why Is It Important to Include the Tax Effect into Cost

question 109

Multiple Choice

Why is it important to include the tax effect into cost of capital computations for firms with debt financing?

• A)firms pay taxes on the outstanding principal amount of the debt.
• B)taxable income is reduced by the amount of the interest expense.
• C)comparisons with equity financing would otherwise not be possible.
• D)taxes are paid on interest but not on dividends.

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Definitions:

Unconscious

The part of the mind that is inaccessible to the conscious mind but that affects behavior and emotions.

Ego

In psychoanalytic theory, the part of the personality that mediates between the demands of the id, the superego, and the external world.

Ego

In psychoanalytic theory, the part of the personality that mediates between the desires of the id and the constraints of the superego and reality, playing a key role in decision making and behavioral regulation.

Socially Appropriate

Behaviors or actions that are considered acceptable or expected by society or within a specific social context.