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.

---

Definitions:

Imc Messages

Integrated Marketing Communications messages that ensure all forms of communications and messages are carefully linked together.

Target Market

The specific group of consumers at whom a company aims its products or services, identified through characteristics like demographics, interests, and behavior.

Interest Awareness

The process of recognizing and understanding one's own interests or the interests of a target audience.

Direct Marketing

Sales and promotional techniques that deliver promotional materials individually.