If the Present Value of the Interest Tax Shield on Debt

question 26

Multiple Choice

If the present value of the interest tax shield on debt equals the present value of the costs of financial distress,then the trade-off theory implies that the:

• A) firm is using the optimal level of debt.
• B) firm is paying too high an interest rate.
• C) firm's market value equals its book value.
• D) firm should increase its use of debt.

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Definitions:

Founder

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