1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Aleksandr-060686 [28]
3 years ago
6

1. The interest tax shield (tax deductibility of interest) is a key reason why: the required rate of return on assets rises when

debt is added to the capital structure. the value of an unlevered firm is equal to the value of a levered the net cost of debt to a firm is generally less than the cost of equity. the cost of debt is equal to the cost of equity for a levered firm.
Business
1 answer:
Ivanshal [37]3 years ago
7 0

Answer:

the net cost of debt to a firm is generally less than the cost of equity.

Explanation:

If we assume both, investor in firms and lender to firms want's a certain return x

because the lender return (the interest) are tax deductible the net cost of debt will be:  x ( 1 - t)

where t is the tax rate being rate beteen 0 and 1

as 1 less a fraction will be less than 1 we can stablish that:

x > x(1 - t)

x is the cost of equity

while x(1-t) is the net cost of debt

therefore, the cost of debt is lower than cost of equity.

You might be interested in
Suppose you're pitching in a softball game and facing a good hitter. you remember that you struck her out with a fastball the la
WARRIOR [948]
<span>When you make this decision, you are primarily using your critical thinking. You are using information you were given in the past and applying it to future events.</span>
8 0
2 years ago
What is a disadvantage of government bonds?
PolarNik [594]
The disadvantage of government bonds is that the government keeps the money
7 0
3 years ago
Dome Metals has credit sales of $270,000 yearly with credit terms of net 90 days, which is also the average collection period. A
bixtya [17]

Answer:

Net change in income = $8,100

Explanation:

Given:

Current credit sales= $270,000 per year.

Average collection period= 90 days

A 2/15, net 90 means a 20℅ discount if payment is made within 15 days.

Which means new credit terms increase will be

(90/15) * 20℅ = 120℅

We now find the following:

•Revised sales will be = (current sales * new credit terms increase)

= $270,000 * 120℅ = $324,000

•Increase in sales = ( new sales - current sales)

=$324,000 - $270,000 = $54,000

•Profit increase = (profit percent * Increase in sales)

= 15℅ * $54,000 = $8,100

• Average receivable under existing policy =

= $270,000 * (90/360) = $67,500

• Average under new policy =

$325,000 * (15/360) = $13,500

• Receivable reduction= $67,500 - $13,500 = $54,000

• Interest savings

= $54,000 * 12℅ = $6,480

• Cost of discount =

$324,000 * 2℅ = $6,480

Therefore the net change in income if new credit terms are adopted will be = (increase in profit + interest savings - cost of discount)

= $8,100+$6,480-$6,480

= $8,100

3 0
3 years ago
6. Explain how liabilities of an LLC (taxed as a partnership) or an S corporation affect the amount of tax losses from the entit
Natasha_Volkova [10]

Answer:

LLC liabilities are included as part of member's tax basis while S corporation liabilities are not.

Tax rules favors LLCs.

Explanation:

LLC liabilities are included as part of a member's tax basis while S corporation liabilities are not included in an S corporation shareholder's tax basis other than loans from the shareholders.

This distinction is important because the amount of loss a member or shareholder may deduct is limited to his or her tax basis in either his or her LLC interest or shares. Thus in this particular regard Tax rules favors LLCs.

7 0
3 years ago
productivity software has been used for a number of years. Recent advancements in productivity software technology have made ___
kipiarov [429]
Coordination or cooperation
7 0
2 years ago
Other questions:
  • When you first started your new business, you were so excited about the large volume of orders you had. One year later, you find
    5·1 answer
  • According to the Crash Course video on the Industrial Economy, in which of the following ways did the US Civil War spur rapid in
    8·1 answer
  • National Financial​ Services, Inc. invested $ 24,000 to acquire 5,000 shares of Stonebridge​ Investments, Inc. on March​ 15, 201
    11·1 answer
  • Fashion, Inc. had a Retained Earnings balance of $16,000 at December 31, 2021. The company had an average income of $6,500 over
    5·1 answer
  • Imagine that you own a company that sells computer parts.
    12·2 answers
  • For each separate case, record the necessary adjusting entry. On July 1, Lopez Company paid $1,200 for six months of insurance c
    7·1 answer
  • _________was established by the Better Business Bureau to evaluate ads directed at children based on guidelines that encourage s
    9·1 answer
  • Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the note to Lou who, in turn, indorses it to Mona, wh
    10·1 answer
  • Theo quan điểm hiện đại khi tiếp cận chi phí chất lượng, chi phí chất lượng thấp nhất là khi
    15·1 answer
  • in 2008 and early 2009, share values declined sharply as the global economy fell into a severe recession. this type of stock mar
    9·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!