If a firm has no debt, the firm is:

A. leveraged

B. unlevered

If a firm converts to 30% debt:

a. the firms equity will constitute 30% of the value of total capital.

b. the firms equity will constitute 70% of the value of total capital.

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?

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

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

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

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