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.

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Definitions:

Synergistic

Describes the action of a medication that augments or enhances the actions of another medication.

Additive Effect

The combined actions of two or more drugs are the same as the sum of each action individually.

Agonist

A drug that binds to a receptor in order to produce or trigger a response.

NIH

The National Institutes of Health, a part of the U.S. Department of Health and Human Services, is the primary federal agency conducting and supporting medical research.