Reference no: EM132977908

Question - Real estate purchases are often financed with at least 80% debt. Most? corporations, however, have less than 50% debt financing. Assuming that firms decide their capital structure by considering the tradeoff between the tax benefits of debt and the costs of financial distress, which of the following provides the most plausible explanation for this empirical observation?

a. The financial distress costs of corporations are low because corporate assets are easy to? liquidate, whereas real estate assets are difficult to resell.

b. The tax savings from debt are likely to be much lower for real estate transactions than for corporations.

c. Real estate assets can generally be easily resold at their full market? value, whereas corporations typically face much higher distress costs.