In the Traditional View, at What Level of Borrowing Does

Multiple Choice

In the Traditional view, at what level of borrowing does the Optimal Capital Structure occur?

A) Shareholders' marginal demand for risk compensation due to borrowing is just equal to the increased returns from borrowing.
B) The cost of common share capital is equal to the cost of borrowing.
C) The benefits arising from tax relief due to borrowing are offset by the potential cost of bankruptcy.
D) Shareholders are no longer indifferent to the risks associated with borrowing.
E) There is any borrowing as shareholders always demand risk compensation equal to the increased returns from borrowing.