The Change in Firm Value in the Presence of Corporate

question 73

Multiple Choice

The change in firm value in the presence of corporate taxes only is:

• A) positive as equityholders face a lower effective tax rate.
• B) positive as equityholders gain the tax shield on the debt interest.
• C) negative because of the increased risk of default and fewer shares outstanding.
• D) negative because of a reduction of equity outstanding.
• E) None of these.

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Definitions:

Employment Law

The body of law that governs the rights and duties between employers and workers and regulates the working environment.

Equal Opportunities

Policies and practices designed to ensure that individuals are treated fairly and equitably, without discrimination based on characteristics such as race, gender, disability, or age.

Protected Classes

Groups of people who are legally protected from discrimination and harassment in the workplace, housing, education, and other areas based on specific characteristics such as race, religion, gender, and more.

Equity Theory

Equity Theory suggests that individuals seek fairness in relationships, feeling satisfied when they perceive that their inputs and outcomes are proportional to those of their comparison others.