If taxes rate decreases (for example, from 40% to 20%). Given the following four statements:

I. The benefit of tax shield created by debt decreases.

II. The cost of debt (financial distress and bankruptcy cost) increases.

III. When taxes rate is 20%, the cost of equity will increase with leverage but at a slower rate compared to when tax rate is 40%.

IV. For the same firm, the optimal capital structure will have a lower leverage ratio when tax rate decreases.

		a) I and II are correct
		b) All statements are correct
		c)I, III, and IV are correct
		d)Only III and IV are correct
		e)Only II and III are correct.