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Which of the following statements is false? Group of answer choices The optimal level of debt D*, balances the costs and benefits of leverage. As the debt level increases, the firm benefits from the interest tax shield (PV of interest tax shield isTc xD). (Tc= marginal corporate tax rate) If the debt level is too large firm value is reduced due to the loss of tax benefits (when interest exceeds EBIT), financial distress costs, and the agency costs of leverage. As the debt level increases, the firm faces worse incentives for management, which increase wasteful investment and perks

Respuesta :

The correct answer should be: As the debt level increases, the firm faces worse incentives for management, which increase wasteful investment and perks, it is not always true. since increased debt provides interest obligations and place limit on managers.

Because all other statements are true. As optimal level of debt optimizes costs and benefits.

If debt becomes too large, firm value is reduced due to the mentioned reasons.

And if debt level increases, the firm benefit is T*D.

What is the Optimal Capital Structure?

An optimal capital structure is the best mix of debt and equity financing that maximizes a company's market value while minimizing its cost of capital.

Thus , we can say that all other statements are true, and the false statement is  As the debt level increases, the firm faces worse incentives for management, which increase wasteful investment and perks.

Learn more about Optimal Capital Structure on:

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