The Trade-Off Theory of Capital Structure Theory Indicates That

question 54

Multiple Choice

The Trade-off Theory of capital structure theory indicates that

• A)the tax shield on debt positively affects firm value, indicating that there is some benefit to financial leverage as opposed to an all-equity capitalisation.
• B)the higher the firm's financial leverage, the higher the probability the firm will be unable to meet the financial obligations included in its debt contracts, which could ultimately lead to firm failure.
• C)there is a range of capital structures, rather than a single capital structure, that is optimal.
• D)all of the above.

---

Definitions:

Retroactive Interference

A phenomenon in memory where newly learned information interferes with and disrupts the recall of previously learned information.

Misinformation Effect

A cognitive bias in which people's memories of an event can be influenced by misleading information presented after the event.

Sensory Memory

The shortest-term element of memory, where sensory information is retained for a very short period of time, usually less than a second.

Echoic Memory

A subtype of sensory memory that retains audio information, allowing individuals to recall sounds and words in a precise manner shortly after the sounds are heard.