The Trade-Off Theory of Capital Structure Recognizes the Tax-Shield Benefit

question 109

True/False

The trade-off theory of capital structure recognizes the tax-shield benefit of debt financing,but also recognizes that the benefit is offset by costs associated with debt financing.

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Definitions:

Resource Demand Curve

A graphical representation showing the relationship between the price of a resource and the quantity of that resource that firms are willing to employ, holding all other factors constant.

Competitive Market

A market structure characterized by many buyers and sellers where no single entity has the power to significantly affect the prices of goods and services.

Product Demand Elasticity

A measure of how sensitive the quantity demanded of a product is to changes in its price.

Marginal Productivity Theory

An economic theory that explains how the value of a productive input is determined by its contribution to the total output.