Answer:
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Explanation:
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Answer:
b. economies of scope.
Explanation:
Based on the information being provided within the question it can be said that this type of situation is known as economies of scope. This is basically the savings that are gained by a company from producing two or more different goods using shared resources. Which would cost them a lot more if they were produced separately.
Suppose an unlevered firm issues $1000 in debt at a cost of debt of 10%. If the corporate tax rate is 20%, $200 t is the change in the firm's value.
Due to the issue of the corporate tax rate is entitled to Interest Tax Shield assuming Debt issued by the firm is perpetual and ignoring financial distress costs
Change in Value of firm
=Net Effect of Debt Financing
=Present Value of Interest Tax Shield (financial distress costs ignored)
= DebtValue * Cost of Debt * Tax Rate Interest Rate
= $1,000 * 10% * 20% 10%
=$200,
corporate tax rate, also known as corporate income tax or corporate tax, is a direct tax levied on the income or capital of a corporation or similar corporation. Many countries impose such taxes at the national level, and similar taxes may be levied at the state or local level.
Learn more about tax rate here: brainly.com/question/25791968
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Answer: C. interest payments on the debt stay fixed, leaving more income to be distributed over less shares.
Explanation:
When the Earnings Before Interest and Taxes (EBIT) is higher, it means that after the interest payment (which is a fixed amount) has been deducted, there will be more income going to shareholders.
It is important to note that when there is leverage, there will be less shares than in the case of no leverage because no leverage would require more shares for adequate financing. Leverage does not require as much shares so the income left after interest payment deductions will therefore go to less shares.
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