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What does the present value of the tax shield from debt formula assume?
What does the present value of the tax shield from debt formula assume?
A)The interest rate on the debt is less than cost of equity.
B)The debt will not be replaced when paid.
C)Interest on the debt is paid only when the debt matures.
D)The interest is paid semiannually.
E) The debt is perpetual.
MM Proposition I with no tax supports the argument that:
A)business risk determines the return on assets.
B) it is completely irrelevant how a firm arranges its finances.
C)the cost of equity rises as leverage rises.
D)a firm should borrow money up to the point where the cost of debt equals the cost of equity.
E)financial risk is determined by the debt-equity ratio.
