According to the Trade-Off Theory, Under Which of the Following

question 9

Multiple Choice

According to the trade-off theory, under which of the following conditions will a firm's capital structure be optimal?

• A) Marginal bankruptcy-related costs = 0
• B) Marginal tax shelter benefits - Marginal bankruptcy-related costs = Interest charges
• C) Debt/assets ratio = Marginal tax shelter benefits
• D) Marginal tax shelter benefits = Marginal bankruptcy-related costs
• E) Marginal tax shelter benefits = Interest charges

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