Debt And Taxes Chap 15 Flashcards
1
Q
Interest taxes shield
A
The reduction in taxes paid due to the tax deductibility of interest payments. It is the additional amount that a firm would have paid in taxes if it did not have leverage
2
Q
The tax benefit
A
While the total firm value increased, the value of equity dropped
3
Q
The share repurchase
A
Shareholders who remain after a recap receive the benefit of the tax shield
4
Q
No arbitrage pricing
A
When securities are fairly priced, the original shareholders of a firm capture the full benefit of the interest tax shield from an increase in leverage
