The firm faces worse incentives for management

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Which of the following statements is false? As the debt level increases, the firm faces worse incentives for management, which increase wasteful investment and perks As the debt level increases, the firm benefits from the interest tax shield (PV of interest tax shield isTc xD). (Tc= marginal corporate tax rate) If the debt level is too large firm value is reduced due to the loss of tax benefits (when interest exceeds EBIT), financial distress costs, and the agency costs of leverage. The optimal level of debt D*, balances the costs and benefits of leverage.

Reference no: EM131560562

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