According to the trade-off theory of capital structure, currently, it is possible for Firm X to increase its firm value by decreasing its leverage. Which one of the following is not correct according to the trade-off theory of capital structure?

Currently, Firm Xs leverage is greater than its optimal leverage.

Currently, if Firm X increases its leverage, its present value of interest tax shields will increase.

Currently, if Firm X increases its leverage, its firm value will increase due to additional tax deductions.

Currently, if Firm X decreases its leverage, its present value of financial distress costs will decline.