Why Is It Important to Include the Tax Effect into Cost

question 55

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:

Domestic Violence

Physical, emotional, sexual, or psychological abuse by one person against another within a domestic setting, such as in marriage or cohabitation.

Anxiety Disorder

A group of mental health disorders characterized by significant feelings of anxiety and fear, affecting daily functioning.

Diagnosed

The identification of the nature of an illness or other problem by examination of the symptoms.

Othering

A process of viewing or treating a person or group of people as fundamentally different from oneself, often leading to marginalization.