What Would Happen to a Firm That Uses an Excessive

question 62

Multiple Choice

What would happen to a firm that uses an excessive amount of debt in a world with no taxes?

• A)The value of the firm would increase because of the increase in the assets of the firm.
• B)The value of the firm would decrease because of the increase in the present value of distress costs.
• C)It is completely irrelevant to the size of the firm.
• D)The value of distress costs do not affect a firm in a tax-free world.

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