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.

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Definitions:

Legal Position

The stance or argument taken by a party in a legal proceeding that is grounded on laws, regulations, or legal principles.

Anticipatory Breach

A situation in contract law where one party shows intent not to fulfill their contractual obligations before the due performance.

Third Party

An individual or group aside from the two primarily involved in a situation, often providing services, intervening, or affected by the actions of the main parties.

Original Parties

The entities or individuals who enter into a contract or legal agreement initially, before any assignments or transfers.