Assume Two Firms Are at Their Maximum Level of Debt

question 38

Multiple Choice

Assume two firms are at their maximum level of debt.How can a merger between these firms create synergy based on debt capacity?

• A)By increasing firm size
• B)By lowering risk
• C)By lowering taxes
• D)By lowering the tax shield
• E)They can't.

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Definitions:

Exponent

In mathematics, a number indicating how many times a base is to be multiplied by itself.

Binomial

A polynomial expression that contains exactly two terms, typically written in the form a+b.

Simplify

To make an expression less complex by combining like terms and executing arithmetic operations where possible.

Fraction

A numerical quantity that represents a part of a whole, typically in the form of a numerator divided by a denominator.