Which of the following statments is incorrect?

because creditors can foresee, to at least some extent, the costs of bankruptcy, they charge a higher rate of interest to compensate for the present value of bankruptcy costs.

the firm's business risk is largely determined by the financial characteristics of its industry.

financial risk refers to the extra risk stockholders bear as a result of the use of debt as compared with the risk they would bear if no debt were used.

whenever a firm goes into debt, it is using financial leverage.

the trade-off theory tells us that the capital structure decision involves a tradeoff between the costs of debt financing and the benefits of debt financing.