According to the Tax Shield Hypothesis,we Should Expect to Find

question 21

Multiple Choice

According to the tax shield hypothesis,we should expect to find:

• A)a negative relationship between companies with high non-debt tax shields and companies with low debt/equity ratios.
• B)a positive relationship between companies with high non-debt tax shields and companies with high debt/equity ratios.
• C)a positive relationship between companies with high non-debt tax shields and companies with low debt/equity ratios.
• D)a positive relationship between companies with low non-debt tax shields and companies with low debt/equity ratios.

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Definitions:

Premium

An amount paid in addition to the standard or nominal rate, applicable in contexts such as insurance, bonds, or issues related to stock.

Annual Amortization

The portion of the total amortization expense allocated within a single fiscal year.

Interest Expense

The cost incurred by an entity for borrowed funds, typically reported on the income statement within the period the interest is incurred.

Annual Amortization

The process of spreading the cost of an intangible asset over its useful life on a yearly basis.