We can interpret the optimal level of debt as the firm's ________,or the highest amount the firm can borrow before the value of the firm begins to decline.
A)equity capacity
B)equity multiplier
C)debt capacity
D)interest tax shield

Question

Quizplus · Accepted Answer

The optimal level of debt is commonly referred to as the firm's debt capacity, which represents the highest amount of debt a firm can take on without negatively impacting its value or financial position. Choices A and B are not accurate descriptions of the optimal level of debt, and while the interest tax shield may play a role in debt financing decisions, it does not define the concept of debt capacity.

We Can Interpret the Optimal Level of Debt as the Firm's