The Interest Tax Shield Has No Value When a Firm

question 38

Multiple Choice

The interest tax shield has no value when a firm has a:
I.tax rate of zero.
II.debt-equity ratio of 1.
III.zero debt.
IV.zero leverage.

• A)I and III only
• B)II and IV only
• C)I, III, and IV only
• D)II, III, and IV only
• E)I, II, and IV only

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Definitions:

Project Analysis

The process of reviewing and evaluating a proposed project to determine its feasibility and potential profitability.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes to covering fixed costs and generating profit.

Total Costs

The sum of all expenses incurred by a business in producing goods or services, including fixed and variable costs.

Net Present Value

The divergence in the current worth of cash entering and leaving an entity throughout a specified timeframe.