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:

Journal Entry

A record in accounting that documents a business transaction in the general ledger.

Government Regulation

Government regulation refers to the laws and rules established by governmental bodies that impose restrictions, requirements, or obligations on the operations of businesses and individuals.

Corporate Form of Organization

A legal structure utilized by businesses that allows them to be recognized as separate legal entities from their owners, providing benefits like limited liability.

Income Tax

A tax levied by governments on the income earned by individuals and businesses.