Please provide a thorough explanation.

QUESTION 18

The presence of financial distress costs can explain why firms choose debt levels that are too low to exploit the interest tax shield.

True

False

QUESTION 19

The Tradeoff Theory suggests that ________.

	A.	a firm should choose a debt level where the tax savings from increasing leverage are just offset by the increased probability of incurring the costs of financial distress
	B.	with higher costs of financial distress, it is optimal for a firm to choose higher leverage
	C.	differences in the magnitude of financial distress costs and the volatility of cash flows cannot explain the differences in the use of leverage across industries
	D.	there is no rational explanation for why firms choose debt levels that are too low to fully exploit the debt tax shield