What Would Happen to a Firm That Uses an Excessive

question 62

Multiple Choice

What would happen to a firm that uses an excessive amount of debt in a world with no taxes?

• A)The value of the firm would increase because of the increase in the assets of the firm.
• B)The value of the firm would decrease because of the increase in the present value of distress costs.
• C)It is completely irrelevant to the size of the firm.
• D)The value of distress costs do not affect a firm in a tax-free world.

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Definitions:

Wrongfully Received

Obtaining assets or benefits without legal right or justification.

Infringer

An individual or entity that violates or encroaches upon someone else's rights, especially intellectual property rights.

Service Marks

Symbols, names, or logos used by companies to identify and distinguish their services from those of others.

Trademarks

Symbols, words, or phrases legally registered or established by use as representing a company or product.