All of the Following Statements Are Correct Except

question 2

Multiple Choice

All of the following statements are correct except:

• A)The pecking order hypothesis is a theory that states managers prefer to use new debt to finance the firm, then retained earnings, and (as a final resort) new equity. Too many clones
• B)The market timing hypothesis states that firms try to time the equity market by issuing stock when their stock prices are low and repurchasing shares when stock values are high.
• C)The static tradeoff hypothesis states that firms will balance the advantages of equity (its lower cost and tax-deductibility of interest) with its disadvantages (greater possibility of bankruptcy and the value of explicit and implicit bankruptcy costs).
• D)Agency costs increase the optimal level of debt financing for a firm above the level that would be appropriate if agency costs were zero.
• E)None of the above statements are correct.

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