Debt interest is a _______expense that is particularly important for companies with high tax rates.

Q: Why do corporations pay higher interest rates on debt than the US federal government?

A: Interest rates are charged based on the risk factor allotted to them. Higher the risk higher the…

Q: 1b) Banks offer overdraft facilities and term loans, among other services, to their corporate…

A: The answer is stated below:

Q: debt financing.

A: Debt financing refers to the amount which is raised by the company after selling the debt…

Q: what happens to the cost of debt if the pourcentage of debt gets lower in the capital structure

A: Cost of debt is the return that is expected by all debt holders. They get their return in the form…

Q: Financing with Debt Versus Equity. It is commonly understood that the cost of financing a…

A: For any entity, there are two ways of raising funds: Equity Financing and Debt Financing. Companies…

Q: Discuss MM proposition II under the situation when there are corporate taxes and risk-free debt.

A: Corporate tax is defined as the tax on the corporate's tax. Here, taxes used to make the payment on…

Q: If the corporate tax rate is greater than zero, how would taxes affect the firm's cost of capital?

A: Solution:- Cost of capital means the minimum rate of return required by the investors of a firm ie.…

Q: When one uses the after-tax weighted average cost of capital (WACC) to value a levered firm, the…

A: Introduction:- The main use of Weighted average cost of capital is to determine the cost of each…

Q: Outline the advantages and disadvantages of using short term debt, as opposed to longterm debt, in…

A: Deducting of current liabilities from the current assets, will be termed as working capital.…

Q: Which of the following are true about debt and equity interest payments are generally tax deductible…

A: Debt refers to borrowed money that must be repaid over time, typically with interest. In this form…

Q: whether the statement is true or false.

A: Asset-based financing is the finance availed by a company in lieu of its assets. In such cases, the…

Q: Explain the advantages and disadvantages of the use of debt to a company

A: Debt - Debt is a source of fund to a company on which company pay an annual fixed payment. and that…

Q: 1. Explain the main two types that the company could prefer to use them as a source of finance?

A: There are various types of sources of finance, but the main two sources which the company used are…

Q: Using Miller (1977) personal income tax model to explain the impact of personal taxes due to income…

A: Personal tax rates on debt and equity securities are typically different. Debtholder’s main earning…

Q: Why do companies accelerate depreciation on their tax return but often use slower depreciation…

A: Companies generally use accelerated depreciation on their tax return, as these methods result in a…

Q: Indicate whether each of the following statements is true or false. Support your answers with the…

A: When a company raises debt, it becomes liable to pay interest on the borrowed amount. However, the…

Q: What are the different ways to estimate bad debt? How does this affect net income? What does…

A: The company makes sales on cash and sales on account as well. The company generally makes sales on…

Q: Describe the strenghts and weaknesses of companies dding debt in their capital structure.

A: Debt is a financial instrument which is used by the companies to fund their business. Companies…

Q: Explain how continuous reliance on debt financing will affect the return to the equity holders or…

A: Financing is the method through which a corporation acquires capital or funds from the financial…

Q: A stock has a Beta of 1.2, the T-Bill is returning 2.5% annually and the market return is 9%. If…

A: Return on equity = Risk free Rate + Beta * (Market Return - Risk free Rate)

Q: Identify the following as either an advantage or a disadvantage of bond financing for a company.

A: A bond is a debt security or financial instrument that represents a loan made by an investor to a…

Q: One reason a company may choose to issue additional debt instead of equity when raising capital is…

A: cost of capital refers to the cost that is to be charged on the business operations. It is…

Q: Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a…

A: Bond financing refers To the borrowing for the long term that is used by the state and local…

Q: A corporation that uses debt concentrates the risks of the business on the ___________.

A: Answer

Q: For a typical firm, assumes that all rates are after taxes and that the firm operates at its target…

A: Given, cost of equity  > after tax cost of debt  > WACC.

Q: True/False and Explain: Josephine says that firms which obtain debt financing by posting collateral,…

A: The objective of the question is to determine whether the statement made by Josephine is true or…

Q: The other term for a debt-free firm is ____________

A: If a company has zero debt on its balance sheet, then it is known as a debt-free company.

Q: When estimating cost of debt, the coupon rate is used as the cost of debt. Group of answer choices…

A: Cost of debt is a significant factor for any organisation to assess. The same is also used to…

Q: Why is it important to include the tax effect into cost of capital computations for firms with debt…

A: In case of debt financing company  Cost of debt we take for computation  of weighted average cost of…

Q: The interest tax shield adds value to a levered (part debt part equity) firm. A True B False

A: The objective of the question is to determine whether the interest tax shield adds value to a…

Q: Companies borrow because it is in their best interests financially.

A: The given statement is True..... Companies borrow because it is in their best interests…

Q: How any company is taking tax advantage of bonds payable or any other fixed cost financing?

A: Bond can be considered as an I.O.U between the lender and the borrower that contains details about…

Q: a company is more likely to be considered solvent if it has a ____ debt-equity ratio and a _____…

A: A lower debt-equity ratio indicates that a firm has a low value of debt in comparison to its equity.…

Q: The higher the debt level, the greater the burden borne by ___________ and the cost of debt.

A: The cost of debt is the rate a company pays on its debt

Q: State two reasons why a company might prefer to issue debt capital rather than equity capital.

A: A company can raise capital either through equity by issuing common stock or through debt by issuing…

Q: How does the WACC DCF methodology mechanically incorporate interest tax shields (select the best…

A: The correct answer is "By estimating a discount rate that incorporates the tax benefits of debt."In…

Q: Which of the following is a disadvantage of long-term debt as a means of company financing? Group…

A: Funds are very important and necessary for smooth running of a business organization. A business has…

Q: Critically discuss the effect of increasing the amount paid upfront when corporations make capital…

A: Capital purchases refer to the expenses a company makes for buying new equipments, improving long…

Q: Indicate whether the following statements is true or false. Provide the relevant explanations.   In…

A: The cost of capital is the rate of return that investors require to invest in a company's…