Corporate taxes and financial distress costs apply to firm

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Reference no: EM13879682

Assume both corporate taxes and financial distress costs apply to a firm. Given this, the tradeoff theory of capital structure illustrates that

A. A firm's value and its weighted average cost of capital are inversely related

B. A firm's value and its tax rate are inversely related

C. The maximum value of a firm is obtained when a firm is financed solely with debt

D. The value of a firm rises as the interest rate on debt rises

E. The value of a firm rises as both the interest rate on debt and the tax rate rise

Reference no: EM13879682

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