Which One of the Following Is Correct Based on the Static

question 1

Multiple Choice

Which one of the following is correct based on the static theory of capital structure?

• A)A debt-equity ratio of 1 is considered to be the optimal capital structure.
• B)The more debt a firm assumes,the greater the incentive to acquire even more debt until such time as the firm is financed with 100 per cent debt.
• C)At the optimal level of debt a firm also optimises its tax shield on debt.
• D)A firm receives the greatest benefit from debt financing when its tax rate is relatively low.
• E)The costs of financial distress decrease the value of a firm.

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Definitions:

Fungible Goods

Items or goods that are interchangeable with others of the same type, quality, and quantity.

Gross Negligence

A lack of care that demonstrates a reckless disregard for the safety or lives of others, significantly beyond ordinary negligence.

Bailment

The temporary placement of control or possession of personal property into someone else's hands, for a specific purpose, with the expectation of its return.

Legal Owner

The individual or entity that holds valid title to property or assets, recognized by law.