According to the Signaling Theory, When Should a Firm Use

question 13

Multiple Choice

According to the signaling theory, when should a firm use debt beyond the normal target capital structure?

• A) When the debt/assets ratio is greater than one
• B) When marginal tax shelter benefits are equal to marginal bankruptcy-related costs
• C) When investors and managers have identical information about the firm's prospects
• D) When the firm has favorable prospects
• E) When the firm is entirely equity financed

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