When Bankruptcy Is Added to the M&M World of Capital

question 65

Multiple Choice

When bankruptcy is added to the M&M world of capital structure,which of the following statements is true as more debt is added to the financing mix of the company?

• A)The interest tax shield is a benefit to equity holders,although they bear increasing risk.
• B)The advantage of the tax shield starts to be offset by financial distress costs.
• C)The WACC of the company starts to increase past a certain level of debt.
• D)All of the above

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