Based Upon the "Trade-Off Theory" of Capital Structure,what Differences Might

question 19

Multiple Choice

Based upon the "trade-off theory" of capital structure,what differences might you expect in the capital structure of a food producer and a defence contractor?

• A) higher debt-equity ratio for food producer.
• B) higher debt-equity ratio for defence contractor.
• C) neither firm should use debt in their structure.
• D) differences in capital structure will make no valuation differences in these firms.

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Definitions:

Incurred

Refers to costs or expenses that have been consumed or utilized in the process of generating revenue.

Accrual-Basis Accounting

A bookkeeping approach that documents income and expenditures at the time they are accrued, irrespective of the actual cash transaction timing.

Revenue Recognition Principle

The Revenue Recognition Principle is an accounting guideline that determines the specific conditions under which revenue is recognized or accounted for.

Expense Recognition Principle

An accounting principle that expenses should be recognized in the period in which they are incurred, matching expenses with related revenues.