According to the Trade-Off Theory of Capital Structure

question 61

Multiple Choice

According to the trade-off theory of capital structure,

• A)optimal capital structure occurs when the present value of tax savings on account of additional borrowing just offsets the increase in the present value of costs of distress.
• B)optimal capital structure occurs when the stockholders' right to default is balanced by the bondholders' right to get interest and principal payments.
• C)optimal capital structure occurs when the benefits of limited liability is just offset by the value of the firm's lawyers' claims.
• D)None of the options are correct.

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Definitions:

Sustainability

Economic development that aims to reconcile global economic growth with environmental protection.

Economic Growth

An increase in the production of goods and services in an economy over a period of time, typically measured by GDP.

Environmental Integrity

The maintenance of the world's physical, biological, and chemical environments to sustain ecosystem health and function.

Centenarians

People who have reached the age of 100 years or older, a milestone achieved by a small fraction of the population.