The After-Tax Cost of Debt Generally Increases When

question 22

Multiple Choice

The after-tax cost of debt generally increases when:
I.a firm's bond rating increases.
II.the market-required rate of interest for the company's bonds increases.
III.tax rates decrease.
IV.bond prices rise.

• A) I and III only
• B) II and III only
• C) I, II, and III only
• D) II, III, and IV only
• E) I, II, III, and IV
• F) None of the above.

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Definitions:

Public Choice Theory

An economic theory that studies how public sector decisions are made, considering individuals in the public sector as self-interested agents and applying the tools of economics to political science.

Government Decision Making

The process by which governments choose between different policies, actions, or strategies to address specific public issues or problems.

Rent-Seeking Behavior

The actions by persons, firms, or unions to gain special benefits from government at the taxpayers’ or someone else’s expense.

Public Choice Theory

An economic theory that applies principles of economics to political science, analyzing how public decisions are made and the behaviors of voters, politicians, and bureaucrats.