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According to the trade-off theory, if the PV of the tax shield generated by debt is equal to the PV of the financial distress costs,

According to the trade-off theory, if the PV of the tax shield generated by debt is equal to the PV of the financial distress costs, then the:

firm appears to have a low risk of financial distress.

firm is too heavily levered.

firm has reached its optimal debt level.

tax shield has been calculated incorrectly.

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