Which of the Following Is a Safe Assumption for a Firm

question 34

Multiple Choice

Which of the following is a safe assumption for a firm in which the PV of the tax shield is approximately equal to the costs of financial distress?

• A) The tax shield has been calculated incorrectly.
• B) The firm is too heavily levered financially.
• C) The firm has reached its optimal debt level.
• D) The firm appears to have low risk of financial distress.

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Definitions:

Positive Utility

The benefit or satisfaction gained from consuming goods and services, contributing to overall well-being.

Price

The cash amount either expected, obligatory, or presented as a settlement for something.

Coffee

A popular beverage made from roasted and ground bean seeds, known for its stimulating effect due to caffeine.

Diminishing Marginal Utility

The decline in the additional satisfaction a person derives from consuming one more unit of a good or service.