Given the existence of taxes and bankruptcy costs, the optimal capital structure is 100% debt.

Name: Given the existence of taxes and bankruptcy costs, the optimal capital structure is 100% debt.
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Question

Quizplus · Accepted Answer

The existence of taxes and bankruptcy costs means that the optimal capital structure includes a mix of both debt and equity. While debt can provide tax shields, too much debt can lead to high bankruptcy costs. Therefore, a balance must be found between the two forms of financing.

Given the Existence of Taxes and Bankruptcy Costs, the Optimal