Asked by Ashley Mayer on May 04, 2024
Verified
When taxes are factored in, debt financing increases the value of a firm.
Debt Financing
A method by which companies or governments raise capital by borrowing funds, usually from a financial institution or through the issuance of bonds.
Value of a Firm
An assessment of the total worth of a business, considering all sources of equity and debt.
- Comprehend how debt financing influences a firm's valuation and the cost of capital in the presence of taxes.
Verified Answer
CS
Charlie SalehMay 07, 2024
Final Answer :
True
Explanation :
Due to the tax deductibility of interest payments, debt financing can lower a firm's tax liability, effectively increasing the firm's value by reducing its overall cost of capital.
Learning Objectives
- Comprehend how debt financing influences a firm's valuation and the cost of capital in the presence of taxes.
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