According to the Trade-Off Theory,if the PV of the Tax

question 91

Multiple Choice

According to the trade-off theory,if the PV of the tax shield generated by debt is equal to the PV of the financial distress costs,then the:

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

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