The Present Value of the Costs of Financial Distress Increases

question 112

Multiple Choice

The present value of the costs of financial distress increases with increases in the debt ratio because the:

• A) expected return on assets increases.
• B) present value of the interest tax shield is greater.
• C) equity tax shield is depleted.
• D)probability of default and/or bankruptcy is greater.

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Definitions:

Water

A clear, flavorless, scentless, and almost invisible chemical compound that primarily makes up the waters of Earth's rivers, lakes, and seas.

Electronegativity

A measure of an atom's ability to attract and hold electrons, influencing the bond type and polarity among atoms.

Electrons

Subatomic particles with a negative charge, found in all atoms and playing essential roles in electricity, chemistry, and bonding.

Compound

A substance made up of two or more different elements that are chemically bonded together.