1. Granting a tax deduction for corporate interest enables financial leverage to increase a firm's value by:
a. increasing EBIT.
b. decreasing the lender's share of EBIT.
c. decreasing the government's share of EBIT.
d. b and c
2. Which of the following is most correct?
a. When the return on capital employed (ROCE) is less than the before tax cost of debt, a company can increase its ROE by trading out equity and into debt.
b. When the return on capital employed (ROCE) is less than the after tax cost of debt, a company can increase its ROE by trading out equity and into debt.
c. When the return on capital employed (ROCE) is more than the before tax cost of debt, a company can increase its ROE by trading out equity and into debt.
d. When the return on capital employed (ROCE) is more than the after tax cost of debt, a company can increase its ROE by trading out equity and into debt.