Which One of the Following Has the Greatest Tendency to Increase

question 33

Multiple Choice

Which one of the following has the greatest tendency to increase the percentage of debt included in the optimal capital structure of a firm?

• A)exceptionally high depreciation expenses
• B)very low marginal tax rate
• C)substantial tax shields from other sources
• D)low probabilities of financial distress
• E)minimal taxable income

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Definitions:

Rescind

To cancel, revoke, or repeal a contract, agreement, or offer.

Unsecured Creditors

Creditors who have extended credit without requiring collateral, making their claims less secure in the event of a borrower's bankruptcy.

Bankruptcy Estate

All legal or equitable interests of the debtor in property, both tangible and intangible, at the time of the bankruptcy filing.

Reaffirmation Agreement

A contract in which a debtor agrees to continue paying a dischargeable debt after the bankruptcy process, essentially renewing the debt.