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When both the tax deductibility of debt and the present value of potential bankruptcy costs are included, the cost of capital for a firm tends

When both the tax deductibility of debt and the present value of potential bankruptcy costs are included, the cost of capital for a firm tends to: A. be constant regardless of the level of debt usage. B. decrease as the level of debt increases. C. increase as the level of debt increases. D. decrease up to some debt-value ratio, then increase as bankruptcy costs become significant.

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