Although the Value of an Additional Interest Tax Shield May

question 63

Multiple Choice

Although the value of an additional interest tax shield may be positive,firms may restrict borrowing if:

• A) the returns on the project are too high.
• B) their asset base is largely intangible.
• C) their asset beta is zero.
• D) the borrowing increases their WACC.

---

Definitions:

Upstream

In the oil and gas industry, activities related to exploration and production of oil and natural gas.

Downstream

In the oil and gas industry, this refers to processes and operations related to refining crude oil and distributing and marketing petroleum products.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and subsequently adjusted to reflect the investor's share of the investee's profits or losses.

Permanent Loss

A decrease in the value of an asset or investment that is not expected to be recovered over time.