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QUESTION
When both the tax deductibility of debt and the present value of potential bankruptcy costs are included, the cost of capital for a firm tends to A....
When both the tax deductibility of debt and the present value of potential bankruptcy costs are included, the cost of capital for a firm tends to
A. be constant regardless of the level of debt usage.
B. decrease as the level of debt increases.
C. increase as the level of debt increases.
D. decrease up to some debt-value ratio, then increase as bankruptcy costs become significant.
