According to the Trade-Off Theory,the Capital Structure Is a Trade-Off

question 131

Multiple Choice

According to the trade-off theory,the capital structure is a trade-off between:

• A) tangible and intangible asset risk.
• B) high and low target debt ratios.
• C) tax savings and financial distress costs.
• D) tax shields and equity financing.

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Definitions:

Market System

An economic system where decisions regarding investment, production, and distribution are based on supply and demand, and prices are determined in a free price system.

Production Goals

Targets set by a company regarding the quantity and quality of products to be produced within a certain timeframe.

Limited Resources

The finite availability of resources such as time, money, and materials, which constrains production, consumption, and allocation decisions.

Consumer Sovereignty

The principle that the production and sale of goods and services in an economy are determined by the preferences and decisions of consumers.