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 afford to take on more debt, as they are less likely to face bankruptcy costs, making debt financing more attractive due to the tax shield benefits.

The Optimal Capital Structure Will Tend to Include More Debt