The presence of financial distress

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Reference no: EM131054603

Do you agree or disagree with the following statement? Provide specific reasons to support your answers.

1. The presence of financial distress can explain why firms choose debt that are too high to fully exploit the interest tax shield.

2. If there were no costs of financial distress, the value of the firm would continue to increase with increasing debt until the interest on the debt exceeds the firm's earnings before interest and taxes and the tax shield is exhausted.

Reference no: EM131054603

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