The Interest Tax Shield Is a Key Reason Why

question 35

Multiple Choice

The interest tax shield is a key reason why:

• A)the required rate of return on assets rises when debt is added to the capital structure.
• B)the value of an unlevered firm is equal to the value of a levered firm.
• C)the net cost of debt to a firm is generally less than the cost of equity.
• D)the cost of debt is equal to the cost of equity for a levered firm.
• E)firms prefer equity financing over debt financing.

Understand the concept of agency problems and potential solutions.

Acknowledge the importance of ethics in corporate governance and its impact on investor decisions.

Recognize the role of stakeholders in a corporation and the potential for conflicts of interest.

Understand the implications of financial decisions on a company's survival and profitability.