When Graphing fiRm Value Against Debt Levels, the Debt Level

Multiple Choice

When graphing firm value against debt levels, the debt level that maximizes the value of the firm is the level where:

A) the increase in the present value of distress costs from an additional pound of debt is greater
Than the increase in the present value of the debt tax shield.
B) the increase in the present value of distress costs from an additional pound of debt is equal
To the increase in the present value of the debt tax shield.
C) the increase in the present value of distress costs from an additional pound of debt is less
Than the increase of the present value of the debt tax shield.
D) distress costs as well as debt tax shields are zero.
E) distress costs as well as debt tax shields are maximized.