Reference no: EM133120915

Can you please explain why each of the items (i), (ii), and (iii) are correct or incorrect?

Which of the following items represent valid reasons (based on the value-maximizing principle) for increasing firm's current net leverage, D/V?

(i) Under the current net leverage, the firm expects negative Earnings Before Taxes (EBT) going forward, and no taxes to be paid

(ii) Under the current net leverage, equity holders have incentives to replace safe NPV>0 projects with risky NPV<0 projects

(iii) The purpose of the net leverage increase is to finance a project that will increase firm value while avoiding raising equity

A: (i)

B: (ii)

C: (iii)

D: (i), (ii), and (iii)

E: None of the items