The value of the firm in the presence of debt may risk financial distress. Bankruptcy, the most severe type of financial distress, has an impact on value by:
I. the risk or probability that it may occur
II. the level of risk aversion investors have to debt
III. the total value of the firm being siphoned off to cover bankruptcy costs
A) I only
B) I and II only
C) III only
D) II only
Correct Answer:
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