The Presence of Financial Distress Costs Can Explain Why Firms

question 107

True/False

The presence of financial distress costs can explain why firms choose debt levels that are too low to exploit the interest tax shield.

---

Definitions:

Autonomous Consumption

Represents the amount of consumption that occurs no matter the level of disposable income, indicating basic living expenses.

Disposable Income

The amount of income available to households after taxes and social security charges have been deducted, available for spending or saving.

Consumption

The total amount of goods and services consumed by households and organizations within an economy.

Autonomous Consumption

The level of consumption that occurs when income is at zero, representing the expenditures that consumers must make even when they have no income.