16) John Schell, CEO of Pater Inc., instructed Pater to borrow $500 million, and use the money to repurchase Pater commo

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16) John Schell, CEO of Pater Inc., instructed Pater to borrow
$500 million, and use the money to repurchase Pater common stock.
As a result of the interest tax shield, the Pater stock price
increased by 10% more than the S&P 500 index. Should the Board
of Directors of Pater Inc. give Mr. Schell a large bonus, or a
large reward, for this change? A) Yes, through his actions, the
stock price achieved above-average gains. B) No, although his
tactic increased the stock price, it also increased the stock’s
risk. C) Yes, his timing of share repurchases combined the proper
repurchase price and interest cost. D) No, increasing leverage does
not truly increase firm value when tax effects are included.