When Corporate Tax Rates Decline, the Net Cost of Debt

question 47

Multiple Choice

When corporate tax rates decline, the net cost of debt financing ________.

• A) decreases
• B) is unchanged
• C) increases
• D) doubles

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Definitions:

Cash Dividend

A payment made by a company out of its earnings to its shareholders in cash.

Financing Activities

Transactions that involve raising funds to finance the company's operations and repaying debt; part of a firm's financial operations detailed on the statement of cash flows.

Principal Repayment

The portion of a loan payment that goes toward reducing the original amount borrowed, not including interest.

Financing Activities

Transactions that result in changes in the size and composition of the equity capital or borrowings of a company.