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

distress costs as well as debt tax shields are zero.

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 maximized.

e

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.

Answer rating: 100% (QA)

ANSWER IS e the increase in the present value of distress costs from ... View the full answer