Assume Both Corporate Taxes and Financial Distress Costs Apply to a Firm.Given

Multiple Choice

Assume both corporate taxes and financial distress costs apply to a firm.Given this, the static theory of capital structure illustrates that:

A) a firm's value and its weighted average cost of capital are inversely related.
B) a firm's value and its tax rate are inversely related.
C) the maximum value of a firm is obtained when a firm is financed solely with debt.
D) the value of a firm rises as the interest rate on debt rises.
E) the value of a firm rises as both the interest rate on debt and the tax rate rise.