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  3. which of the following is true? i) the tradeoff th

Which of the following is TRUE? i) The Tradeoff Theory suggests that the firm should...

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Finance

Which of the following is TRUE?

i) The Tradeoff Theory suggests that the firm should choose a debt level where the tax savings from increasing leverage are just offset by the increased probability of incurring the costs of financial distress.

ii) For firms with higher costs of financial distress, it is optimal for the firm to choose higher leverage.

iii) One important benefit of debt is interest tax shields.

iv) CAPM shows a positive relation between systematic risk and expected return.
  • A.

    i, iii

  • B.

    i, iii, iv

  • C.

    ii, iii, iv

  • D.

    i, iv

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