If a Company Has the Optimal Amount of Debt, Then

question 68

Multiple Choice

If a company has the optimal amount of debt, then the:

• A) direct financial distress costs must equal the present value of the interest tax shield.
• B) value of the levered company will exceed the value of the unlevered company.
• C) company has no financial distress costs.
• D) Value of the firm is equal to VL + TCD.
• E) debt-equity ratio is equal to 1.

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