Which of the Following Is Consistent with the Tradeoff Theory

question 24

Multiple Choice

Which of the following is consistent with the Tradeoff theory of capital structure?

• A) The cost of capital continuously decreases as the firm's debt ratio increases.
• B) The cost of capital remains constant as the firm's debt ratio increases.
• C) There are no costs associated with bankruptcy.
• D) There is an optimal level of debt financing.

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Definitions:

Whooping Cough

A highly contagious respiratory tract infection characterized by severe coughing fits and a distinctive "whooping" sound when inhaling.

Pertussis

A highly contagious respiratory disease also known as whooping cough, caused by the bacterium Bordetella pertussis.

Sensitivity

Abnormal susceptibility to a substance.

Abnormal Susceptibility

An increased likelihood of developing certain conditions or diseases compared to the general population.