The interest tax shield adds value to a levered (part debt part equity) firm. A True B False
Q: Which one of the following statements related to capital gains is correct? Multiple Choice O O O O…
A: The capital gain of an investment is the percentage change in the value of the investment, whether…
Q: what type of risk?
A: Factors or risk that affect the entire market is known as Systematic Risk. Changes in interest rate…
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: It has been suggested that in a world with only corporate taxation the value of the firm = the value…
A: Capital structure of a firm signifies the mix of equity and debt used for financing the business.…
Q: If you take corporate taxes and the cost of financial distress are into consideration, the market…
A: The cost of conducting business that a company in financial crisis faces, such as a greater cost of…
Q: Explain Why you agree or disagree with the following statement. The answer should not be more than 3…
A: The MM theory helps to understand the impact of different sources of capital and the tax rates on…
Q: The primary financial market does not ensure the collection of saved income from holders of…
A: Fresh stocks and bonds are issued to the public for the first time on the primary market. Investors…
Q: QUESTION 2 Which of the following statements is false O A positive net working capital is desirable…
A: The income statement and balance sheet are the important financial statements of the business. The…
Q: A company that earns a higher return with borrowed funds than it pays in interest on those funds is…
A: Financial leverage is the strategic use of borrowed funds to augment the return on investment. In…
Q: An investor pays taxes on unrealized gains on equity investments options: True False
A: An unrealized gain could be a potential profit that exists on paper, resulting from an investment.…
Q: Why can an M&A fail? O a. Economies of scale O b. shortcomings of the due diligence process,…
A: In general terms merger and acquisition refers to the consolidation of assets of 2 or more entities.…
Q: According to the trade-off theory, the decision on capital structure entails a trade-off between the…
A: Capital structure means the way of getting finance from different sources.
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: Identify the following as either an advantage or a disadvantage of bond financing for a company. a.…
A: Bonds are debt instruments issued by companies to raise funds.The company that issues the bonds…
Q: Please explain one advantage and one disadvantage of financing a company with debt. Advantage…
A: Advantage: Tax BenefitsOne significant advantage of financing a company with debt is the potential…
Q: The weighted average cost of capital provides the rate of return such that All capital providers…
A: To invest in new project or investment, firm require new funds which will be arranged by different…
Q: FASB allows debt to be shown at its fair market value. Consequently, if a company in financial…
A: Financial Accounting Standards Board (FASB) The FASB, located in Norwalk, Connecticut, is an…
Q: If the corporate income tax rate were to increase, then the use of debt will become more desirable…
A: Capital structure can be defined as the mixture of different capital sources. Capital sources can be…
Q: Briefly explain the over-investment problem from the perspective of the agency costs between…
A: Firms with both the debt and equity in the capital structure often face agency conflicts between…
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: Regarding the trade-off theory, capital structure is a trade-off between: O tangible and intangible…
A: The capital structure refers to the mix of various available sources of capital which is used by a…
Q: QUESTION 4 Which of the following statements is correct? O A. The tax benefit from using debt…
A: The leverage of the firm indicates the level of debt employed by the organization. If the usage of…
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: There are two significant benefits of obtaining a loan over investing capital: Select one: a. banks…
A: Loan is defined as the funds, which used to be given to some other party in an exchange regarding…
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: ntion that in the absence of the tax advantages of debt the use of gearing can increase the expected…
A: The use of debt is very common in organization because the debt had the tax advantages due to which…
Q: When the firm gets acquired by a better fundamental company, does that increase, decrease, or have…
A: A credit spread is the difference in yield of a US Treasury security and the yield on a corporate…
Q: True or False: When a company borrows money to finance the purchase of an asset to use in its…
A: Every organization's wants to achieve that much earing so that they can save amount after paying its…
Q: Indicate whether the following statements are true or false. If the statementis false, explain…
A: Introduction: Capital gain is referred as any profit or gain that coming from the sale of a ‘capital…
Q: Every time a corporation borrows capital, it is using its fundamental leverage. * Correct O Wrong
A: The leverage is an investment strategy that uses to tell that how much company should finance the…
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: Why do the companies in high tax brackets incur lower after-tax interest costs by financing through…
A: Debts are the liability issued by the company to raise funds. The debt holder receives fixed…
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: Does it matter if the firm raises capital through debt or equity? Why or Why not?
A: Debt involves borrowing money that is to be repaid including the interest. Whereas equity involves…
Q: 1. Which of the following is not a reason for the issuance of long-term liabilities? a. Debt…
A: Company means a form of business where the share holder invest money in business in form of shares…
Q: Which of the following is incorrect about debt financing? A. Debt financing always generates excess…
A: Debt financing is a common method for companies to raise capital by borrowing funds. While it offers…
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…
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- Debt interest is a _______expense that is particularly important for companies with high tax rates.(1) What factors might lead a company to gainadditional funds through debt financing rather thanthrough equity financing? (2) Why does consumerdebt have a more negative connotation than businessdebt?Assume a M&M frictionless world EXCEPT that there are Corporate level taxes only. Under these assumptions, capital structure is irrelevant in that changing capital structure has no impact on the value of the firm. Group of answer choices True False
- Which of the following is not a reason for the issuance of long-term liabilities? Debt financing dilutes ownership interest. Debt may be the only available source of funds. Debt financing may have a lower cost. Debt financing offers an income tax advantage.(d) In an efficient market with no tax effects, should an acquiring firm use cash or stock? ( nThe interest tax shield adds value to a levered (part debt part equity) firm. A True B False
- Please answer MCQWhich is not a benefit of debt to the corporation?a. interest payments are tax deductibleb. when debt is used heavily, it increases stock valuec. In periods of inflation, debt is paid back with amounts that are worth less than the ones borrowed.d. compared to equity, debts have a lower cost of capitale. answer not givenTrue (t) or False (f) _____ A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.
- 14. When a firm borrows money to repurchase equity, the firm value no taxes, but the firm value when there is corporate tax. A. increases; decreases C. remains the same; increases when there are B. decreases; increases D. decreases; remains the sameQUESTION 13 Which of the following statements is correct? O A. The tax benefit from using debt financing reduces a firm's risk O B. The lower the level of a firm's debt, the higher the firm's leverage O C. The lower the level of a firm's debt, the higher the firm's equity multiplier O D. The lower the level of a firm's debt, the lower the firm's equity multiplierAccording to the trade-off theory, the optimal capital structure is the level of debt that O minimizes the financial distress costs. equates the present values of the incremental interest tax shield and the incremental financial distress costs. maximizes the after-tax cash flows that are internally generated. maximizes the present value of the interest tax shield.