Given Corporate Taxes, Why Does Adding Debt to the Capital

question 53

Multiple Choice

Given corporate taxes, why does adding debt to the capital structure increase firm value?
I.Extra cash flow goes to the firm's investors rather than the tax authorities.
II.Earnings before interest and taxes are fully taxed at the corporate rate.
III.Personal tax rates are the same as marginal corporate tax rates.

• A)I only
• B)II only
• C)III only
• D)II and III only

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