According to the Pecking-Order Theory,a Firm's Leverage Ratio Is Determined

question 29

Multiple Choice

According to the pecking-order theory,a firm's leverage ratio is determined by:

• A)the value of the tax benefit of debt.
• B)equating the tax benefit of debt to the financial distress costs of debt.
• C)the firm's financing needs.
• D)the market rate of interest.
• E)the profitability of the firm.

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Definitions:

Monte Carlo Simulation

A computational algorithm that uses repeated random sampling to obtain numerical results, especially to calculate risks and uncertainties in predictive and forecasting models.

Cumulative Probability

The probability of obtaining a result equal to or less than a specific value within a statistically distributed set of data.

Demand Probability

The likelihood or chance that a product or service will be desired or required by the market at a certain time.

Monte Carlo Simulation

A statistical technique employing random variables to simulate a model numerous times, thereby estimating the probable outcomes of various decisions or future events.