The Change in Firm Value in the Presence of Corporate

question 23

Multiple Choice

The change in firm value in the presence of corporate taxes is:

• A) positive as equityholders face a lower effective tax rate.
• B) positive as equityholders gain the tax shield on the debt interest.
• C) negative because of the increased risk of default and fewer shares outstanding.
• D) negative because of a reduction of equity outstanding.

Recognize the significance of sample size and selection techniques in research generalizability.

Acknowledge the influence of culture and sample characteristics on the generalizability of research findings.

Understand the concepts of reliability and validity in research methodology.

Grasp the basic tenets of social psychology and its approach to understanding human behavior.

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Definitions:

Book Value

The value of an asset according to its balance sheet account balance, taking into account the cost of the asset minus accumulated depreciation.

Poison Pill

A corporate tactic to avoid being acquired. A poison pill is a clause written into a firm’s bylaws that makes it prohibitively expensive for an acquiring firm to take control.

Takeover Attempt

A bid by a company or investor to acquire control of another company, often by purchasing a substantial portion of its stock.

White Knight

A friendly investor or company that acquires a firm at risk of a hostile takeover, often viewed as a more favorable option by the target company's management.