Which of the Following Is the Best Definition of Static

question 267

Multiple Choice

Which of the following is the best definition of static theory of capital structure?

• A) The costs that are directly associated with bankruptcy, such as legal and administrative expenses.
• B) The cost of capital of a firm that has no debt.
• C) Theory that a firm borrows up to the point where the tax benefit from an extra dollar in debt is exactly equal to the cost that comes from the increased probability of financial
• Distress.
• D) The equity risk that comes from the nature of the firm's operating activities.
• E) The tax saving attained by a firm from interest expense.

---

Definitions:

Constrained Resource

A limited resource in a production process that can restrict the company's ability to produce goods, impact scheduling, and ultimately affect throughput.

Current Profitability

A measure of how much profit a company is generating at the current time, often used to assess financial health.

Constrained Resource

A factor or resource in production that limits the output or performance of a process.

Profitability Order

A method of organizing projects or investments based on their profitability or expected return.