The Interest Tax Shield Is a Key Reason Why

question 42

Multiple Choice

The interest tax shield is a key reason why

• A)the value of an unlevered firm is equal to the value of a levered firm.
• B)the net cost of debt to a firm is generally less than the cost of equity.
• C)firms tend to minimize their borrowing.
• D)the cost of debt is equal to the cost of equity for a firm with a debt-to-equity ratio of 1.
• E)firms prefer equity financing over debt financing.

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Definitions:

Capitalism

An economic system based on the principles of market competition, private property, and the pursuit of profit.

Sociology Development

The study of how society, social structures, and patterns of social behavior evolve over time.

National Isolationism

A political and economic policy stance favoring the minimization of a nation's involvement in international affairs, trade, and agreements, to prioritize domestic interests.

Social Forces

External societal factors that influence individuals and groups, shaping behaviors, attitudes, and social structures.