All of the Following Statements Are Correct Except

question 65

Multiple Choice

All of the following statements are correct except:

• A) The pecking order hypothesis is a theory that states managers prefer to use new debt to finance the firm, then retained earnings, and (as a final resort) new equity.
• B) The market timing hypothesis states that firms try to time the equity market by issuing stock when their stock prices are high and repurchasing shares when stock values are low.
• C) The static tradeoff hypothesis states that firms will balance the advantages of debt (its lower cost and tax-deductibility of interest) with its disadvantages (greater possibility of bankruptcy and the value of explicit and implicit bankruptcy costs).
• D) Agency costs reduce the optimal level of debt financing for a firm below the level that would be appropriate if agency costs were zero.

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Definitions:

Insolvency

A financial state in which an individual or entity is unable to meet their debt obligations as they become due, often leading to bankruptcy proceedings.

Debts Exceeds Property

A financial situation where the total amount of liabilities surpasses the value of assets owned.

Bankruptcy Legislation

Laws and regulations that govern the process through which individuals or businesses unable to meet their debt obligations can seek relief.

Equitable Distribution

A legal principle in divorce law where marital property is divided fairly between the spouses, not necessarily equally.