4Which of the following statements regarding capital structure is(are) correct?Choose all correct answer(s).Other things equal (i.e. identical leverage and identical asset value), an iron ore company's financial distress cost is likely to be higher than a gold mining company because iron ore company's beta is likely to be higher than that of the gold mining company.Airlines have very high leverage because they have very stable cash flows and low probability of financial distressCompanies' actual leverage ratios often deviate from their optimal ratios but over the long-run they tend to adjust the leverage ratios toward their optimal levels.Assume that United States adopted a dividend imputation system, the tax benefit of debt financing would increase on average.

The following statements regarding capital structure are correct:

1. Companies' actual leverage ratios often deviate from their optimal ratios but over the long-run they tend to adjust the leverage ratios toward their optimal levels. This is because companies are constantly trying to balance the benefits and costs of debt and equity financing to achieve their optimal capital structure.

The following statements are incorrect:

1. Other things equal (i.e. identical leverage and identical asset value), an iron ore company's financial distress cost is likely to be higher than a gold mining company because iron ore company's beta is likely to be higher than that of the gold mining company. This statement is incorrect because the financial distress cost is not directly related to the company's beta. It is more related to the company's leverage and the volatility of its cash flows.

2. Airlines have very high leverage because they have very stable cash flows and low probability of financial distress. This statement is incorrect because airlines typically have high operational leverage and volatile cash flows due to factors such as fuel costs and economic cycles, which can lead to a high probability of financial distress.

3. Assume that United States adopted a dividend imputation system, the tax benefit of debt financing would increase on average. This statement is incorrect because a dividend imputation system would reduce the tax advantage of debt financing. Under such a system, the tax paid by a company can be credited to shareholders, reducing their personal tax liability. This makes equity financing more attractive relative to debt financing.