Why Does Allowing for the Existence of Corporate Taxation Cause

question 75

Multiple Choice

Why does allowing for the existence of corporate taxation cause firms to prefer the maximum amount of debt possible?

• A) Because the flotation costs associated with debt are significantly lower than the flotation costs associated with equity.
• B) Because debt is tax-deductible, the effective cost of debt is much cheaper than using equity.
• C) Because debt places fewer demands on the firm's cash flows.
• D) None of these.

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Definitions:

Brightness

The perception of the intensity of light emitted or reflected by an object, contributing to its visibility.

Loudness

A perceptual attribute of sounds that determines the intensity or volume as heard by the listener.

Subliminal Stimulus

A Subliminal Stimulus is any sensory input that is below an individual's threshold for conscious perception, yet can influence thoughts, feelings, or actions.

Sensitivity To Constant Stimuli

The phenomenon whereby prolonged exposure to a constant stimulus leads to a decrease in the organism's response to that stimulus, also known as habituation.