The Pecking Order Theory and the Trade-Off Theory of Optimal

question 51

Multiple Choice

The pecking order theory and the trade-off theory of optimal capital structure lead to different predictions:

• A)According to the trade-off theory, there is no target amount of leverage.
• B)According to the pecking order theory, profitable firms use more debt.
• C)According to the trade-off theory, firms do not use internal funds to finance investments.
• D)According to the pecking order theory, tax rates have no effect on leverage.
• E)None of the above.

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