Borrowing Can Add Value for Companies with High Effective Tax

question 22

Multiple Choice

Borrowing can add value for companies with high effective tax rates because:

• A)borrowing increases total taxes.
• B)the company is likely to use tax savings associated with debt.
• C)the company tax saved from borrowing is equal to the additional personal tax paid.
• D)the company tax saved from borrowing is less than the additional personal tax paid.

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Definitions:

Control

refers to having the power to direct the management and policies of a company, often through the ownership of a majority of shares.

Intrastate Issues

Matters or disputes confined within the borders of a single state, not involving or crossing state lines.

Issuers

Entities that create and distribute financial instruments like stocks, bonds, or notes to finance operations or expand capital.

Profits Within the State

Income generated within a specific state's geographical boundaries, subject to state taxation and regulation.