Short-Term Notes Payable

question 101

Multiple Choice

Short-term notes payable:

• A)Can replace an account payable.
• B)Can be issued in return for money borrowed from a bank.
• C)Are negotiable.
• D)Are an unconditional promise to pay.
• E)All of the choices are correct.

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Definitions:

M&M Proposition I

A principle of corporate finance stating that the value of a firm is unaffected by how it is financed, in the absence of taxes, bankruptcy costs, and asymmetric information.

Interest Tax Shield

The reduction in income taxes that results from taking allowable deductions for interest expenses.

Capital Structure

The mix of different forms of external financing used by a company, including debt, equity, and hybrid securities.

Tax Shield

The decrease in income tax liability achieved by subtracting permissible deductions like mortgage interest or depreciation from one's taxable income.