Quiz Ch 16 – T/F Interest Tax Shield and Equity Holders
Fundamentals of Corporate Finance
Brealey, Myers, and Marcus
10th Edition
True or false: Equity holders reap the benefits of an interest tax shield.
True or false: Equity holders reap the benefits of an interest tax shield.
True or false: When investors have the ability to borrow or lend independently at the same conditions as the firm, they will NOT incur extra costs for the firm’s leverage.
True or false: Loan covenants can secure a commitment from companies to accept investments with positive net present value (NPV) while turning down those with negative NPV.
True or false: Signals perceived by management play a vital role in the pecking-order theory.
True or false: According to MM’s Proposition II, the expected return on assets rises as the debt-equity ratio increases.
True or false: According to MM’s Proposition II, the firm’s debt-equity ratio increase leads to a higher required return on equity.
True or false: In the pecking-order theory of capital structure, companies lean towards internal financing to avoid sending adverse signals that could reduce stock prices.
True or false: The risk associated with tax shields can be considered to be on par with the risk of the interest payments that give rise to them.
Which represents a disadvantage for individual investors who are subject to taxes?
What is the value of a levered firm equivalent when taxes are taken into account?