The Optimal Capital Structure Will Tend to Include More Debt

question 7

Multiple Choice

The optimal capital structure will tend to include more debt for firms with:

• A) the highest depreciation deductions.
• B) the lowest marginal tax rate.
• C) substantial tax shields from other sources.
• D) lower probability of financial distress.
• E) less taxable incomE.

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Definitions:

Limited Partnership

A business structure where at least one partner has unlimited liability and at least one partner has liability only up to the amount they have invested.

Fiduciary Duty

A legal obligation of one party to act in the best interest of another party, such as the duty a trustee has to beneficiaries.

Liability

Refers to the state of being legally responsible for something, such as a debt or obligation.

Agent

An individual or entity authorized to act on behalf of another, typically in a business or legal capacity, entering into agreements or making decisions.