When Firms Issue More Debt, the Tax Shield on Debt

question 13

Multiple Choice

When firms issue more debt, the tax shield on debt ____, the agency costs on debt (i.e., costs of financial distress) ____, and the agency costs on equity ____.

• A) increases; increases; increases
• B) decreases; decreases; decreases
• C) increases; increases; decreases
• D) decreases; decreases; increases
• E) increases; decreases; decreases

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Definitions:

Bar Chart

A visual representation using bars of varying lengths to show comparisons among categories.

Graphical Deception

The misuse or poor design of graphs that mislead or confuse the viewer, often resulting in incorrect interpretations of data.

Absolute Changes

The difference in the value of a variable observed at two points in time, without consideration for relative change over time.

Percentage Changes

A way to express a change in a variable as a fraction of its original value, often represented as a percent.