The Change in Firm Value in the Presence of Corporate

question 35

Multiple Choice

The change in firm value in the presence of corporate taxes only is:

• A)positive as equity holders face a lower effective tax rate.
• B)negative as equity holders gain the tax shield on the debt interest.
• C)negative because of the increased risk of default and fewer shares outstanding.
• D)negative because of a reduction of equity outstanding.
• E)None of the above.

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