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
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter14: Completing A Quality Audit
Section: Chapter Questions
Problem 24CYBK
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Question
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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