Given Corporate Taxes, Why Does Adding Debt to the Capital

question 26

Multiple Choice

Given corporate taxes, why does adding debt to the capital structure increase firm value?

• A)Extra cash flow goes to the firm's investors rather than the tax authorities.
• B)Earnings before interest and taxes are fully taxed at the corporate rate.
• C)Personal tax rates are the same as marginal corporate tax rates.
• D)Earnings before interest and taxes are fully taxed at the corporate rate, and personal tax rates are the same as marginal corporate tax rates.

---

Definitions:

Conj

A shortened term for conjunction, referring to a compound sentence formed with the word "and" to connect clauses, propositions, or terms.

Simp

Slang term used to describe an individual who overvalues someone else, typically someone they are attracted to, often to the extent of debasing themselves.

Conj

A logical connective, short for "conjunction," that represents the logical AND operation, yielding true only if both of its arguments are true.

Conj

Short for conjunction, a logical operator that combines two propositions to form a conjunction, which is true only if both propositions are true.