Which two competing effects result for the company taking on higher levels of debt?
A) There is a lower risk of incurring the costs of financial distress.
B) There is a greater risk of incurring the costs of financial distress.
C) There is an increased tax relief on increasing debt levels.
D) There is a decreased tax relief on increasing debt levels.

Question

Quizplus · Accepted Answer

Higher debt increases the risk of financial distress but also provides tax benefits due to interest being tax-deductible.

Which Two Competing Effects Result for the Company Taking on Higher