Which of the Following Is True of Levered Firms If

question 17

Multiple Choice

Which of the following is true of levered firms if they pay a corporate tax and no personal tax?

• A)The value of a levered firm with static risk-free perpetual debt is the value of an otherwise equivalent unlevered firm divided by the product of the corporate tax rate and the market value of the firm?s debt.
• B)The value of a levered firm with static risk-free perpetual debt is the value of an otherwise equivalent unlevered firm plus the product of the corporate tax rate and the market value of the firm?s debt.
• C)The value of a levered firm with static risk-free perpetual debt is the value of an otherwise equivalent unlevered firm minus the product of the corporate tax rate and the market value of the firm?s debt.
• D)The value of a levered firm with static risk-free perpetual debt is the value of an otherwise equivalent unlevered firm plus the product of (1- corporate tax rate)and the market value of the firm?s debt.

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Definitions:

Decimal Places

The number of digits to the right of the decimal point in a numerical value, indicating the precision of a measurement.

Limit Dimensioning

A dimensioning method where two limits of size are provided, giving the minimum and maximum allowable dimensions for manufacturing.

Maximum

The highest allowable limit for a dimension, value, or quantity.

Minimum

The lowest value or amount permissible or possible in a given set of conditions or contexts, often referred to in design, mathematics, and statistics.