The maximum debt theorem of financial leverage suggests that as financial leverage steadily increases,the value of firms fall in response.

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The maximum debt theorem of financial leverage does not suggest that the value of firms falls as financial leverage increases. Instead, the Modigliani-Miller theorem, which is often discussed in the context of financial leverage, suggests that in a perfect market, the value of a firm is unaffected by how that firm is financed, whether through debt or equity.

The Maximum Debt Theorem of Financial Leverage Suggests That as Financial