Zero debt to successively higher levels of debt

Reference no: EM1355059

If a tax paying firm went from zero debt to successively higher levels of debt, why would you expect its stock price to rise? (Note: beyond a point, excessive use of debt would cause the stock price to then hit a peak, and then begin to decline.)
a. concentration of ownership (i.e., increased use of "other people's money" on operating the firm)
b. debt is a cheaper cost of capital, thus the use of debt decreases the financing expenses for the firm.
c. Debt payments, i.e., interest payments, are a tax-deductible expense, which creates a debt tax shield
d. All of the above
e. None of the above.

Reference no: EM1355059

Questions Cloud

Employment empowerment : describe methods for preparing employees at all levels for shifts in individual and group decision-making responsibility that come with the flat organizational model.

Explain and draw a decision tree of the problem : Explain and Draw a decision tree of the problem and Determine the best solution and What is the expected value of the entire project?

Different sections of a research report : Each of the different sections of a research report (abstract, introduction, method, results, conclusions, references) is important to the overall report, but different readers might find different sections to be of more interest to them.

Determine the magnitude of the acceleration of spacecraft : A total electric charge of 4.50 nC is distributed uniformly over the surface of a metal sphere with a radius of 22 cm. The potential is zero at a point at infinity. Find the value of the potential at 45 cm from the center of the sphere.

Zero debt to successively higher levels of debt : If a tax paying company went from zero debt to successively higher levels of debt, determine why would you expect its stock price to rise?

Determine eoq for bank cash : A bank branch must keep a stock of cash on hand for customer withdrawals. The net daily withdrawal rate at the branch is $5,000. The opportunity cost of cash is 10% per year.

Describe the four functions of management : Describe the four functions of management and Include an explanation of how each function relates to an organization.

Purpose of external auditors : What is the purpose of external auditors providing an opinion on a company's financial statements?

Show the issue in relation to effective communication : Questions Organizational Behaviour - There are several barriers inhibit the effective exchange of information. Discuss the issue in relation to effective communication?

User Account

All Pages