When Both the Tax Deductibility of Debt and the Present

question 31

Multiple Choice

When both the tax deductibility of debt and the present value of potential bankruptcy costs are included,the cost of capital for a firm tends to:

• A) be constant regardless of the level of debt usage.
• B) decrease as the level of debt increases.
• C) increase as the level of debt increases.
• D) decrease up to some debt-value ratio,then increase as bankruptcy costs become significant.

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Definitions:

Maintenance Skills

These are the abilities required to repair, care for, and keep machinery, buildings, or equipment in good condition.

Affect

To make a difference to or have an influence on something or someone.

Passenger Service

A range of services provided to individuals traveling or commuting, usually by means of public or private transportation.

Who's

A contraction of "who is" or "who has," used in questions and statements.