Which One of the Following Is Correct Based on the Static

question 57

Multiple Choice

Which one of the following is correct based on the static theory of capital structure?

• A)A firm receives the greatest benefit from debt financing when its tax rate is relatively low.
• B)A debt-equity ratio of 1 is considered to be the optimal capital structure.
• C)The costs of financial distress decrease the value of a firm.
• D)The more debt a firm assumes, the greater the incentive to acquire even more debt until such time as the firm is financed with 100 percent debt.
• E)At the optimal level of debt a firm also optimizes its tax shield on debt.

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Definitions:

GDP

Gross Domestic Product encapsulates the sum value of every good and service generated within a country's borders over a designated period.

Productive Nonmarket Activities

Economic activities that are productive but do not involve market transactions, such as household work.

Depletion

The reduction in the quantity or value of a resource, such as minerals, forests, or fossil fuels, due to extraction or usage over time.

Resource Base

The total available resources that an economy has access to, including natural resources, labor, and capital.