According to the Signaling Theory, When Should a Firm Use

question 41

Multiple Choice

According to the signaling theory, when should a firm use debt to finance 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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Definitions:

Gestalt Psychology

Perspective in which the whole influences constituent parts rather than vice versa.

Social Psychology

The examination of the impact that the genuine, envisioned, or hinted existence of others has on individuals' cognitive processes, emotional experiences, and conduct.

Attribution Theory

A theory that seeks to explain how individuals infer the causes of their own and others' behavior, attributing them to either internal dispositions or external situations.

Social Group

A collection of individuals who interact with each other and share similar characteristics and a sense of unity.