Ignore Financial Distress Costs

Multiple Choice

Ignore financial distress costs.When [(1 − T_C) × (1 − T_S) = (1 − T_B) ],then firms:

A) should be all-equity financed.
B) need to maintain a debt-equity ratio of .5.
C) tend to be indifferent between issuing debt or issuing equity.
D) discover that both dividends and interest payments are non-deductible business expenses.
E) can reduce their taxes by increasing their dividend payouts.