Which is not a benefit of debt to the corporation? a. interest payments are tax deductible b. when debt is used heavily, it increases stock value c. 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 capital e. answer not given

Which is not a benefit of debt to the corporation? a. interest payments are tax deductible b. when debt is used heavily, it increases stock value c. 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 capital e. answer not given

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter5: Corporations: Earnings & Profits And Dividend Distributions

Section: Chapter Questions

Problem 5DQ

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Which of the following is CORRECT? Select one: a. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation. b. When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. c. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of common stock as measured by the CAPM. d. Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC. e. All of the above are correct. Which of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for the project must also be negative. b. A project's MIRR can never exceed its IRR. c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV. d. If Project 1's IRR exceeds Project 2's IRR, then 1 must…
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Why does issuing debt result in an income tax advantage when compared to issuing equity?
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