The optimal capital structure will tend to include more debt for firms with
A)less taxable income.
B)lower probability of financial distress.
C)substantial tax shields from other sources.
D)the lowest marginal tax rate.
E)the highest depreciation deductions.

Question

Quizplus · Accepted Answer

Firms with a lower probability of financial distress can handle more debt in their capital structure because the risk of default is lower, making debt financing more attractive due to the tax deductibility of interest payments.

The Optimal Capital Structure Will Tend to Include More Debt