The Trade-Off Theory Suggest

question 8

Multiple Choice

The Trade-off Theory suggest?

• A) differences in the magnitude of financial distress costs and the volatility of cash flows cannot explain the differences in the use of leverage across industries.
• B) there is no rational explanation for why firms choose debt levels that are too low to fully exploit the debt tax shield.
• C) with higher costs of financial distress, it is optimal for the firm to choose higher leverage.
• D) the firm should choose a debt level where the tax savings from increasing leverage are just offset by the increased probability of incurring the costs of financial distress.

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Definitions:

Overtime

Additional hours worked beyond the standard working hours, often compensated at a higher pay rate.

Wage Rate

The amount of compensation a worker receives per unit of time or per task completed, usually expressed per hour or piece.

Hourly Wage

The amount of money paid for each hour of work.

Uglifruits

This term does not represent a known economic concept. NO.