Which of the following approaches to determining the firm's optimal capital structure considers both the tax benefits and bankruptcy costs of additional debt financing to arrive at an adjusted firm value?

A. Cost of Capital approach

B. Return Differential approach

C. Comparative Leverage approach

D. None of the above

Which of the following statements is true concerning financial leverage?

I. The use of additional debt may lower the firm's weighted-average cost of capital.

II. Adding debt to the firm's capital structure may encourage greater managerial discipline.

III. Adding debt usually allows for greater discretion regarding the firm's earnings.

A. I only

B. I and II only

C. I and III only

D. II and III only

E. I, II, and III