The Tax Shield on Debt Is One Reason Why

question 26

Multiple Choice

The tax shield on debt is one 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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