The Interest Tax Shield Is a Key Reason Why

question 42

Multiple Choice

The interest tax shield is a key reason why

• A)the value of an unlevered firm is equal to the value of a levered firm.
• B)the net cost of debt to a firm is generally less than the cost of equity.
• C)firms tend to minimize their borrowing.
• D)the cost of debt is equal to the cost of equity for a firm with a debt-to-equity ratio of 1.
• E)firms prefer equity financing over debt financing.

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Definitions:

Relationship Failure

Relationship Failure describes unsuccessful romantic relationships that end due to various reasons such as incompatibility, conflict, or loss of interest.

Four Horsemen

A term coined by psychologist John Gottman to describe the four communication behaviors (criticism, contempt, defensiveness, and stonewalling) that predict the end of a relationship.

Contempt

A feeling of disdain or dismissive scorn for someone or something considered inferior or worthless.

Gottman

Refers to John Gottman, a researcher known for his work on marital stability, relationship analysis, and the predictors of divorce.