Imposing a Tax on an Activity That Generates an External

question 171

True/False

Imposing a tax on an activity that generates an external benefit will cause participants in the activity to increase the amount of the activity undertaken.

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Definitions:

EBIT

Earnings Before Interest and Taxes; a measure of a firm's profit that includes all incomes and expenses except interest and income tax expenses.

Common Share Price

The market price of a single share of a company's common stock, reflecting the company's valuation, investor sentiment, and market conditions.

WACC

Weighted Average Cost of Capital, a calculation of a firm's capital cost where each category of capital is proportionately weighted.

Debt Ratio

A financial ratio that measures the proportion of a company's total debt to its total assets, indicating the company's leverage level.