As the Level of Debt Increases the Tax Benefits of Debt

question 89

Multiple Choice

As the level of debt increases the tax benefits of debt increase until ________.

• A) interest costs exceed dividend payments
• B) tax shield benefit exceeds distress costs
• C) raw material costs exceed dividend payments
• D) employee costs exceed interest expense

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Definitions:

MR

Marginal Revenue refers to the increase in revenue that results from the sale of one additional unit of output.

Industry Entry

The process by which new competitors enter an existing market or industry.

Continue Operate

The decision for a business to keep running its operations despite facing challenges or not achieving expected results.

Loss

A decrease in money, resources, or value, often occurring when expenses exceed revenues in a business context or reflecting personal financial setbacks.