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In the Presence of Taxes,firms Are Often Less Leveraged Than

question 22

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In the presence of taxes,firms are often less leveraged than they should be,given the potentially large tax benefits associated with debt.Firms can increase market value by increasing leverage to the point at which the additional contribution of the tax shield to the firm's market value begins to decline.


Definitions:

Price Takers

Describes individuals or companies that accept the market price as given, without having the influence to alter the price of the good or service they are selling or buying.

Advertising

A marketing communication that employs an openly sponsored, non-personal message to promote or sell a product, service, or idea.

Marginal Revenue

The rise in income generated by the sale of an extra unit of a product or service.

Total Revenue

The total income generated by a firm from selling its goods or services before any costs or expenses are deducted.

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