The present value of the interest tax shield is expressed as:

M & M Proposition II with taxes:    A.  has the same general implications as M & M Proposition II without taxes. B.  states that a firm's capital structure is irrelevant. C.  supports the argument that business risk is determined by the capital structure decision. D.  supports the argument that the cost of equity decreases as the debt-equity ratio increases. E.  concludes that the capital structure decision is irrelevant to the value of a firm. Refer to section 16.4

33.	The present value of the interest tax shield is expressed as:    A.  (TC × D)/RA. B.  VU + (TC × D). C.  [EBIT × (TC × D)]/RU. D.  [EBIT × (TC × D)]/RA. E.  Tc × D. Refer to section 16.4

34.	The interest tax shield has no value when a firm has a: I. tax rate of zero. II. debt-equity ratio of 1. III. zero debt. IV. zero leverage.    A.  I and III only B.  II and IV only C.  I, III, and IV only D.  II, III, and IV only E.  I, II, and IV only Refer to section 16.4

35.

The interest tax shield is a key reason why:    A.  the required rate of return on assets rises when debt is added to the capital structure. B.  the value of an unlevered firm is equal to the value of a levered firm. C.  the net cost of debt to a firm is generally less than the cost of equity. D.  the cost of debt is equal to the cost of equity for a levered firm. E.  firms prefer equity financing over debt financing. Refer to section 16.4

36.

Based on M & M Proposition II with taxes, the weighted average cost of capital:    A.  is equal to the aftertax cost of debt. B.  has a linear relationship with the cost of equity capital. C.  is unaffected by the tax rate. D.  decreases as the debt-equity ratio increases. E.  is equal to RU × (1 - TC). Refer to section 16.4

37.	Bankruptcy:    A.  creates value for a firm. B.  transfers value from shareholders to bondholders. C.  technically occurs when total equity equals total debt. D.  costs are limited to legal and administrative fees. E.  is an inexpensive means of reorganizing a firm. Refer to section 16.5