The Trade-Off Theory of Capital Structure Suggests That Firms

question 94

Multiple Choice

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

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

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Definitions:

Hydrothermal Vents

Openings in the sea floor that emit hot, mineral-rich water, supporting unique ecosystems that do not rely on sunlight for energy.

Pelagic Province

The ocean’s open waters.

Salt Content

The concentration of salt, particularly sodium chloride, in a given substance or environment.

Desert Soil

Soil found in arid regions, characterized by low organic matter, lack of moisture, and often high salinity levels.