The "Trade-Off Theory" of Capital Structure Suggests That

question 36

Multiple Choice

The "trade-off theory" of capital structure suggests that:

• A)Firms add leverage whenever interest rates are low.
• B)Firms with higher risk should use less debt.
• C)Firms should use 50% debt and 50% equity.
• D)Firms should use debt to overcome high par values of stock.

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Definitions:

Legal Effect

The result or outcome of a law or legal agreement that determines the rights and obligations of the involved parties.

Civil Law

A system of law derived from Roman law, emphasizing written statutes and codes as the primary source of legal authority.

Criminal Law

The body of law that pertains to crimes, prescribing conduct perceived as threatening, harmful, or otherwise endangering to the property, health, safety, and moral welfare of people.

Burdens of Proof

The obligation to prove allegations presented in a legal dispute.