The Trade-Off Theory of Capital Structure Predicts That

question 14

Multiple Choice

The trade-off theory of capital structure predicts that:

• A) Unprofitable firms should borrow more than profitable ones
• B) Safe firms should borrow more than risky ones
• C) Rapidly growing firms should borrow more than mature firms
• D) Increasing leverage increases firm value

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Definitions:

Mean

A statistical measure that demonstrates the central or typical value in a set of numbers, calculated by dividing the sum of all values by the number of values.

Standard Deviation

A measure of the dispersion or spread of data points in a dataset relative to its mean.

Sum Squared Deviations

The sum of the squares of each data point's deviation from the mean, a measure used in statistics to quantify variability within a data set.

Sample Mean

The average computed from a sample set of data, representing the central tendency or typical value of the sampled population.