The Optimal Capital Structure Will Tend to Include More Debt

question 92

Multiple Choice

The optimal capital structure will tend to include more debt for firms with:

• A) The highest depreciation deductions.
• B) The lowest marginal tax rate.
• C) Substantial tax shields from other sources.
• D) Lower probability of financial distress.
• E) Less taxable income.

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Definitions:

Vicarious Liability

Legal responsibility taken by one party for the actions of another, typically in an employer-employee relationship.

Independent Contractors

Individuals or entities hired to perform specific tasks or services for another entity under a contract, but who retain control over how those services are executed.

Constructive Notice

A legal concept where a person is deemed to have legal notice of a fact, even if they were not directly informed, often through public records.

Agency Relationship Law

Legal principles that govern the relationship between an agent, who acts on behalf of another person (the principal), and the principal, detailing duties, rights, and liabilities.