The Change in Firm Value in the Presence of Corporate

question 27

Multiple Choice

The change in firm value in the presence of corporate taxes only 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.
• E)None of the above.

---

Definitions:

Awfulizing

The cognitive distortion of imagining the worst possible outcomes in a situation, often leading to increased anxiety or fear.

Doom

A term referring to impending disaster, ruin, or the inevitability of a negative outcome.

Personal Pleasures

Activities or experiences that bring joy or satisfaction to an individual on a personal level.

Distressing Events

Situations or occurrences that cause emotional, physical, or psychological strain or distress.