The Tradeoff Theory suggests that$\_\_\_\_\_\_\_\_.$

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Part $1$

A$.$

a firm should choose a debt level where the tax savings from increasing leverage are just offset by the increased probability of incurring the costs of financial distress

B$.$

with higher costs of financial$$ distress, it is optimal for a firm to choose higher leverage

C$.$

there is no rational explanation for why firms choose debt levels that are too low to fully exploit the debt tax shield