When the impact of taxes is considered, but the impact of financial distress is ignored, the optimal financial structure is
A) all equity.
B) an equal mix of debt and equity.
C) any mix of debt and equity. The proportions will not matter.
D) all, or nearly all, debt.

Question

Quizplus · Accepted Answer

When taxes are considered but financial distress is ignored, the optimal financial structure is all, or nearly all, debt. This is because the interest payments on debt are tax-deductible, which can reduce the company's overall tax liability, making debt financing more attractive.

When the Impact of Taxes Is Considered, but the Impact