The Static Theory of Capital Structure Assumes a Firm

question 87

Multiple Choice

The static theory of capital structure assumes a firm:

• A)maintains a constant debt-equity ratio.
• B)has an all-equity structure.
• C)is fixed in terms of its assets.
• D)pays no taxes.
• E)is operating at the point where financial distress costs are eliminated.

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Definitions:

Total Revenue Product

The total revenue generated by a firm from selling the output produced by an additional unit of a factor of production.

Perfect Competitor

A market structure where many firms sell identical products, allowing no single company to influence the market price.

Imperfect Competitor

A firm that has some control over the market price of its product because the product is differentiated and there are few substitutes.

Wage Rate

The amount of money paid to an employee per unit of time, often hourly or annually, for their labor.