it typically has a higher cost of capital than equity. it carries voting rights.
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A corporation may choose to use debt financing because
- it has an income tax advantage.
- it typically has a higher cost of capital than equity.
- it carries voting rights.
- it reduces financial leverage.
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- A company may choose to finance its operations or certain projectts by the means of either debt or equity. explain the diffetence between these two methods and give at least two examples of each.Why would a corporation purchase the stock of another corporation? a. To prevent double taxation of its shareholders b. Because dividends received by a corporation are partially tax-exempt c. It is equivalent to a tax carried forward d. It is equivalent to a tax carried backWhy would a corporation every distribute income? Why not let stock appreciation be the income?
- Select all that are true with respect the similarities or differences between debt and equity. Group of answer choices Debt represents an ownership interest in the firm, equity does not. Equity represents an ownership interest in the firm, debt does not. Generally speaking, dividends are tax deductible, interest is not. (US tax laws) Generally speaking, interest is tax deductible, dividends are not. (US tax laws) Debtholders have priority over equity holders in receiving "payments".When a corporation invests borrowed money in assets that generate profits greater than the after-tax cost of the debt, it increases the return on equity for common shareholders. creates financial leverage. has a mix of debt and equity in its capital structure. does all of these options. If the effective rate of interest is greater than the contract rate, the bonds will sell at par. a premium. a discount. any of these choices, depending on other circumstances.Which of the following is most correct about the cost of capital? The cost of debt reflects the interest rates on debt capital before taking into account the tax effects. Cost of capital is affected by the required rates of return of each of the source of capital, regardless of the capital structure. The capital asset pricing model is the most widely used model to estimate the cost of common equity. To minimize the cost of capital, firms should borrow more than their capacity because increasing the lower cost of debt yields the lowest cost of capital, thus, enhances shareholder value.
- Which of the following is most consistent with using debt to reduce agency costs or conflicts? Question 11 options: Increasing debt reduces a firm’s business risk The interest paid on debt reduces taxable income and income taxes The interest paid on debt reduces cash that management of a firm might otherwise waste or use poorly The issuance of debt helps firms increase their credit ratingIdentify the term being referred to: The concept that shareholders can take advantage of using debt to maximize shareholder’s wealth. *Your corporation needs additional capital to fund an expansion. Discuss the advantages and disadvantages of raising capital through the issuance of stock. Would debt be a better option? Why or why not?