"The interest paid by a firm is tax-deductible and is referred to as interest tax shield. This is the additional amount that a firm would have paid in taxes if it did not have any debt in its capital structure."

True or False?

True

Explanation:

For raising long term finance, a firm may resort to different means such as issue of common stock or issue of bonds or debentures.

Shareholders are to be paid dividends while debenture holders are to be paid periodic interest. The difference being, unlike dividend, interest paid on bonds is a tax deductible expense.

For example, if a firm issues a $1000 8% bonds and the firm's profits are subject to taxation at the rate 30%. Further suppose, the firm earned $5000 profits. Then, the interest paid on $1000 bond i.e $ 80 would be deducted from $5000 and the income that would eventually get taxed would be $4920.

Hence, in the above case, had the firm not issued bonds, the whole of $5000 would've been taxable at 30% rate.

The tax saved by such bonds being $ 80 × 30% i.e $24

This $24 represents interest tax shield. This means, had there been no debt in the firm's capital structure, it would've ended up paying this additional amount of $24 as taxes.

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know

answer; career pathways;