The Static Theory of Capital Structure States That The

question 292

Multiple Choice

The static theory of capital structure states that the:

• A) Debt-equity ratio of a firm is permanently fixed.
• B) Optimal firm value is reached when the tax benefit from another dollar of debt is exactly offset by the financial distress costs of that debt.
• C) Value of a firm rises in a linear fashion in response to the pre-tax cost of debt.
• D) Value of a firm rises every time the debt-equity ratio is increased.
• E) Financial distress costs of a firm are constant.

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Too Much Information

A situation where an individual is overwhelmed by an excessive amount of data or facts, making it difficult to make decisions.

Information Overload

A condition where an individual or organizational capacity to process information is exceeded, leading to difficulty in understanding or making decisions.

Losses

Refers to the decrease in resources, value, or profits, often as a result of business activities, investments, or unforeseen events.

Riskier

Characterized by or involving higher levels of risk; more uncertain or liable to result in adverse outcomes compared to alternatives.