Financial distress costs exist, Taxes exist. Agency costs exist. Modigliani and Miller assumptions otherwise hold. ABC Corp announced a \$5 Billion Debt issuance, the proceeds of which would be used solely to repurchase shares of stock. The share price falls by 3% upon the announcement. Of the explanations below, which is/are consistent with the observation above. 1) The agency costs of debt outweigh the agency benefits of debt 2) The marginal cost of debt is higher than the marginal cost of equity 3) The marginal benefits of the interest tax shield outweigh the marginal costs of financial distress 4) The marginal costs of financial distress outweigh the marginal benefit of the interest tax shield. 1,2 , and 4 3 1 and 4 2 1 and 2 1 and 3 1,2 , and 3