This preview shows page 1. Sign up to view the full content.
Unformatted text preview: r s , than on the interest rate on long-term debt, r d . In other words, the percentage point increase in the cost of equity would be greater than the increase in the interest rate on long-term debt. (Hint: play with some numbers and see what happens.) A. True B. False 12. If the tax laws stated that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense, it would probably encourage companies to use more debt financing than they presently do, other things held constant. A. True B. False 1. Which of the following statements is not (or least) correct? A. Because of the tax shelter created by issuing preferred stock dividends (remember that 70 percent of dividends are excluded from taxes), the firms after-tax cost of preferred stock may be significantly less than its before-tax...
View Full Document
- Spring '08
- Cost Of Capital