Why are equity holders more likely than debt holders to want firms to engage in risky investments?
Answer to relevant QuestionsWhy does redistribution cause efficiency losses? Why might society choose to redistribute resources from one group to another when doing so reduces the overall size of the economic pie? You conducted a research study and found that corporations that finance their investments with a larger ratio of debt to equity tend to pay higher rates of interest to lenders. Why do you think this practice occurs? Different states have different corporate tax rates. How could you use this to study the elasticity of corporate investment with respect to corporate tax rates? What would be the problems with this approach? Compare the two tax systems illustrated in Table 25-4. Describe a taxpayer who would be better off with the existing system than with the flat-tax proposal. Describe a taxpayer who would be better off under the flat-tax ...What is the difference between tax evasion and tax avoidance? How would you empirically distinguish the two phenomena?
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