{"id":47340,"date":"2024-04-15T22:25:22","date_gmt":"2024-04-15T22:25:22","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=47340"},"modified":"2024-04-15T22:25:22","modified_gmt":"2024-04-15T22:25:22","slug":"which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm\/","title":{"rendered":"Which of the following argues that the value of levered firm is higher than that of the unlevered firm?"},"content":{"rendered":"<p>\r\n    <!-- Check if it's an AMP page -->\r\n            <!-- Non-AMP version -->\r\n        <div class=\"mcq-container\" data-quiz-id=\"quizState_6a971d9916901\">\r\n                                            <div class=\"option\" data-option-key=\"option1\" data-is-correct=\"false\">\r\n                    Net Income Approach                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option2\" data-is-correct=\"false\">\r\n                    Net Operating Income Approach                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option3\" data-is-correct=\"true\">\r\n                    MM Model with Taxes                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option4\" data-is-correct=\"false\">\r\n                    Both A and C                <\/div>\r\n                            \r\n            <!-- Feedback messages for non-AMP -->\r\n            <div class=\"feedback\" data-feedback=\"wrong\">Answer is Right!<\/div>\r\n            <div class=\"feedback\" data-feedback=\"right\">Answer is Wrong!<\/div>\r\n        <\/div>\r\n\r\n        <script>\r\n        document.addEventListener('DOMContentLoaded', function () {\r\n            var containers = document.querySelectorAll('.mcq-container');\r\n\r\n            containers.forEach(function(container) {\r\n                var options = container.querySelectorAll('.option');\r\n                var feedbackSelect = container.querySelector('[data-feedback=\"select\"]');\r\n                var feedbackWrong = container.querySelector('[data-feedback=\"wrong\"]');\r\n                var feedbackRight = container.querySelector('[data-feedback=\"right\"]');\r\n\r\n                options.forEach(function(option) {\r\n                    option.addEventListener('click', function() {\r\n                        var selectedOption = option.getAttribute('data-option-key');\r\n                        var isCorrect = option.getAttribute('data-is-correct') === 'true';\r\n\r\n                        \/\/ Remove previous selections\r\n                        options.forEach(function(opt) {\r\n                            opt.classList.remove('correct', 'incorrect');\r\n                        });\r\n\r\n                        \/\/ Add the correct\/incorrect class\r\n                        if (isCorrect) {\r\n                            option.classList.add('correct');\r\n                            feedbackRight.hidden = false;\r\n                            feedbackWrong.hidden = true;\r\n                        } else {\r\n                            option.classList.add('incorrect');\r\n                            feedbackRight.hidden = true;\r\n                            feedbackWrong.hidden = false;\r\n                        }\r\n\r\n                        \/\/ Hide select feedback\r\n                        feedbackSelect.hidden = true;\r\n                    });\r\n                });\r\n            });\r\n        });\r\n        <\/script>\r\n    \r\n    <!--more--><\/p>\n<p>The correct answer is: C. MM Model with Taxes.<\/p>\n<p>The MM Model with Taxes argues that the value of a levered firm is higher than that of an unlevered firm because of the tax deductibility of interest expense. This means that a levered firm can use debt financing to reduce its tax liability, which increases its after-tax cash flow and, therefore, its value.<\/p>\n<p>The Net Income Approach and the Net Operating Income Approach both argue that the value of a firm is equal to the present value of its future net income or net operating income, respectively. These approaches do not take into account the tax deductibility of interest expense, and therefore they do not predict that the value of a levered firm will be higher than that of an unlevered firm.<\/p>\n<p>Here is a more detailed explanation of each option:<\/p>\n<ul>\n<li><strong>Net Income Approach:<\/strong> <div class=\"telegram-channel-container\">\r\n        <a href=\"https:\/\/t.me\/pscnotes2025\" target=\"_blank\" class=\"telegram-channel-button\">\r\n            <span class=\"telegram-icon\">\r\n                <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 496 512\">\r\n                    <path fill=\"white\" d=\"M248,8C111,8,0,119,0,256s111,248,248,248s248-111,248-248S385,8,248,8z M362,177L320,367c-3,14-10,18-20,14l-56-41l-27,26 c-3,3-5,5-10,5l4-63L323,196c5-5-1-7-8-3l-98,62l-42-13c-9-3-10-9,2-14l162-63C351,160,365,164,362,177z\"\/>\r\n                <\/svg>\r\n            <\/span>\r\n            Join Our Telegram Channel\r\n        <\/a>\r\n    <\/div> This approach argues that the value of a firm is equal to the present value of its future net income. Net income is calculated as revenue minus expenses, including interest expense. This approach does not take into account the tax deductibility of interest expense, and therefore it does not predict that the value of a levered firm will be higher than that of an unlevered firm.<\/li>\n<li><strong>Net Operating Income Approach:<\/strong> This approach argues that the value of a firm is equal to the present value of its future net operating income. Net operating income is calculated as revenue minus operating expenses, excluding interest expense. This approach also does not take into account the tax deductibility of interest expense, and therefore it does not predict that the value of a levered firm will be higher than that of an unlevered firm.<\/li>\n<li><strong>MM Model with Taxes:<\/strong> This approach argues that the value of a levered firm is equal to the value <div class=\"youtube-subscribe-container\">\r\n        <a href=\"https:\/\/www.youtube.com\/channel\/UCNHT8lW-JmLC68rjBfZhdkg?sub_confirmation=1\" target=\"_blank\" class=\"youtube-subscribe-button\">\r\n            <span class=\"youtube-icon\">\r\n                <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 576 512\">\r\n                    <path d=\"M549.7 124.1c-6.3-23.7-24.8-42.3-48.3-48.6C458.8 64 288 64 288 64S117.2 64 74.6 75.5c-23.5 6.3-42 24.9-48.3 48.6-11.4 42.9-11.4 132.3-11.4 132.3s0 89.4 11.4 132.3c6.3 23.7 24.8 41.5 48.3 47.8C117.2 448 288 448 288 448s170.8 0 213.4-11.5c23.5-6.3 42-24.2 48.3-47.8 11.4-42.9 11.4-132.3 11.4-132.3s0-89.4-11.4-132.3zm-317.5 213.5V175.2l142.7 81.2-142.7 81.2z\"\/>\r\n                <\/svg>\r\n            <\/span>\r\n            Subscribe on YouTube\r\n        <\/a>\r\n    <\/div> of an unlevered firm plus the present value of the tax shield on debt. The tax shield on debt is the tax savings that a firm receives from deducting interest expense from its taxable income. This approach predicts that the value of a levered firm will be higher than that of an unlevered firm because of the tax deductibility of interest expense.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Join Our Telegram Channel Subscribe on YouTube<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Which of the following argues that the value of levered firm is higher than that of the unlevered firm?<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Which of the following argues that the value of levered firm is higher than that of the unlevered firm?\" \/>\n<meta property=\"og:description\" content=\"Join Our Telegram Channel Subscribe on YouTube\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2024-04-15T22:25:22+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Which of the following argues that the value of levered firm is higher than that of the unlevered firm?","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm\/","og_locale":"en_US","og_type":"article","og_title":"Which of the following argues that the value of levered firm is higher than that of the unlevered firm?","og_description":"Join Our Telegram Channel Subscribe on YouTube","og_url":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm\/","og_site_name":"MCQ and Quiz for Exams","article_published_time":"2024-04-15T22:25:22+00:00","author":"rawan239","twitter_card":"summary_large_image","twitter_misc":{"Written by":"rawan239","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm\/","url":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm\/","name":"Which of the following argues that the value of levered firm is higher than that of the unlevered firm?","isPartOf":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#website"},"datePublished":"2024-04-15T22:25:22+00:00","dateModified":"2024-04-15T22:25:22+00:00","author":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209"},"breadcrumb":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-argues-that-the-value-of-levered-firm-is-higher-than-that-of-the-unlevered-firm\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/exam.pscnotes.com\/mcq\/"},{"@type":"ListItem","position":2,"name":"Financial management","item":"https:\/\/exam.pscnotes.com\/mcq\/category\/financial-management\/"},{"@type":"ListItem","position":3,"name":"Which of the following argues that the value of levered firm is higher than that of the unlevered firm?"}]},{"@type":"WebSite","@id":"https:\/\/exam.pscnotes.com\/mcq\/#website","url":"https:\/\/exam.pscnotes.com\/mcq\/","name":"MCQ and Quiz for Exams","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/exam.pscnotes.com\/mcq\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209","name":"rawan239","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/d97f17072bfa490596c8f78363955d55?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/d97f17072bfa490596c8f78363955d55?s=96&d=mm&r=g","caption":"rawan239"},"sameAs":["https:\/\/exam.pscnotes.com"],"url":"https:\/\/exam.pscnotes.com\/mcq\/author\/rawan239\/"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/47340"}],"collection":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/comments?post=47340"}],"version-history":[{"count":0,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/47340\/revisions"}],"wp:attachment":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/media?parent=47340"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/categories?post=47340"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/tags?post=47340"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}