mpany's overall capital structure the higher return required by its debtholders. B) In the presence of corporate taxes, a company would prefer to raide debt only when the benefits of the tax shield fully offset the cost of debt. C) In the presence of bankruptcy risk, the cost of capital of a company with debt is always higher than the cost of capital of an unlevered company
mpany's overall capital structure the higher return required by its debtholders. B) In the presence of corporate taxes, a company would prefer to raide debt only when the benefits of the tax shield fully offset the cost of debt. C) In the presence of bankruptcy risk, the cost of capital of a company with debt is always higher than the cost of capital of an unlevered company
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Indicate whether each of the following statements is true or false. Support vour answers with relevant explanations.
A) The higher the proportion of equity in a company's overall capital structure the higher return required by its debtholders.
B) In the presence of corporate taxes, a company would prefer to raide debt only when the benefits of the tax shield fully offset the cost of debt.
C) In the presence of bankruptcy risk, the cost of capital of a company with debt is always higher than the cost of capital of an unlevered company.
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