Which of the Following Statements Is True Regarding the Trade-Off

question 62

Multiple Choice

Which of the following statements is true regarding the trade-off theory?

• A) Target debt ratios are similar among firms in the same industry.
• B) Riskier firms tend to rely mostly on debt financing.
• C) Riskier firms should have high target debt ratios.
• D) Less risky firms ought to have a greater amount of debt financing.

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Definitions:

Stock Split

A corporate action where a company divides its existing shares into multiple shares, effectively reducing the price of individual shares without changing the overall market capitalization.

Shares Outstanding

The total number of shares of a corporation's stock that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares.

Buy Back

An agreement where a seller commits to repurchase the product from the buyer after a specified period or under certain conditions.

Shares Outstanding

The total number of shares of a corporation that are owned by shareholders, including those held by institutional investors and restricted shares held by company insiders.