The Interest Tax Shield Is a Key Reason Why

Multiple Choice

The interest tax shield is a key reason why

A) the value of an unlevered firm is equal to the value of a levered firm.
B) the net cost of debt to a firm is generally less than the cost of equity.
C) firms tend to minimize their borrowing.
D) the cost of debt is equal to the cost of equity for a firm with a debt-to-equity ratio of 1.
E) firms prefer equity financing over debt financing.