According to the Trade-Off Theory,capital Structure Is a Trade-Off Between

question 10

Multiple Choice

According to the trade-off theory,capital structure is a trade-off between:

• A) tangible and intangible asset risk.
• B) high and low target debt ratios.
• C) tax savings and financial distress costs.
• D) tax shields and equity financing.

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Definitions:

Bottleneck

A point of congestion or blockage in a production system that significantly reduces efficiency.

Theory of Constraints

A management philosophy focusing on identifying and relieving bottlenecks in processes to improve performance.

External Failure Cost

Costs incurred when a product fails to meet quality standards after it is delivered to the customer, including returns, repairs, and lost reputation.

Prevention Cost

Costs incurred to prevent defects in products or services, including costs for quality training and process control.