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:

Risk Premium

The extra return or reward that investors demand for choosing a risky investment over a risk-free one.

Critical Care Surgeons

Highly specialized surgeons who are focused on the management and treatment of critically ill or injured patients, particularly those requiring comprehensive care and complex surgeries.

Highly Stressful Conditions

Circumstances or environments that significantly increase the level of stress experienced by individuals or organizations.

Uncertain Hours

Work hours that are not fixed or predictable, often varying from week to week.