s. The interest tax shield is a key reason why: w the required rate of return on assets rises when debt is added to the capital structure B) the value of an unlevered company is less than the value of a levered company the value of an unlevered company is greater than the value of a levered company D) the cost of debt is equal to the cost of equity for a levered company E) companies prefer equity financing over debt financing. 6. Which one of the following provides the greatest tendency to increase the percentage of debt included in a company's optimal capital structure according to M&M Proposition 1 with taxes? A) Exceptionally high depreciation expenses B) Increase in marginal tax rate C) Substantial tax shields from other sources D) High probability of financial distress E) Minimal taxable income 7. Gulf Shores Inn is comparing two separate capital structures. The first structure consists of 365,000 shares of stock and no debt. The second structure consists of 330,000 shares of stock and $2.30 million of debt. What is the price per share of equity? A) $68.84 B) $65.71 C) $75.10 D) $84.92 E) $80.88