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:

Recurrence

The act of occurring again, especially after a certain period or due to specific circumstances.

Escape Learning

A behavioral phenomenon where an individual learns to perform a behavior to terminate or avoid an unpleasant situation or stimulus.

Social Learning Theory

A theory that proposes individuals learn new behaviors and information by observing others, emphasizing the importance of cognitive processes in learning.

Correct Behavior

Actions or responses that are deemed appropriate within a given context, often aligning with societal, ethical, or professional standards.