When Graphing Firm Value Against Debt Levels,the Debt Level That

question 9

Multiple Choice

When graphing firm value against debt levels,the debt level that maximizes the value of the firm is the level where:

• A)the increase in the present value of distress costs from an additional pound of debt is greater than the increase in the present value of the debt tax shield.
• B)the increase in the present value of distress costs from an additional pound of debt is equal to the increase in the present value of the debt tax shield.
• C)the increase in the present value of distress costs from an additional pound of debt is less than the increase of the present value of the debt tax shield.
• D)distress costs as well as debt tax shields are zero.
• E)distress costs as well as debt tax shields are maximized.

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