The optimal level of debt in the presence of corporate taxes and bankruptcy costs occurs at the point at which the present value of distress costs the present value of the tax shield benefits.

The correct answer is Equal.

Explanation:

To know what is the optimal level of indebtedness for a company there are some aspects to take into account, although the most important is the sector to which it belongs.

Some companies belonging to sectors such as energy (oil, electricity ...) or construction tend to have high volumes of debt, since the projects they carry out require large amounts of initial investment.

In contrast, there are sectors that do not require so much need for financing and have lower levels of debt. This is the case of service delivery companies, the media or the textile sector.

We must also bear in mind that for some sectors it does not make much sense to study debt ratios, since they are dedicated precisely to lending money, so these ratios are not very helpful when analyzing them. This is the case of banks.

The fact that a company has debt does not have to be bad. It will be if the interest rate you pay is very high or if the profitability obtained from that debt is below the cost involved. Let's take an example: if a company asks for a loan for the construction of a hotel and pays an interest rate of 5%, but then the business works and achieves a return of 15% on the investment, that debt does not seem so bad. Different things would be if we are paying 5% and we cannot get more than 3%.

answer; importance to people; or acceptance;

after cutting wages and benefits in order to increase profit .

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