The Tradeoff Theory of Capital Structure Management Assumes

question 49

Multiple Choice

The tradeoff theory of capital structure management assumes

• A) no corporate income taxes.
• B) cost of equity remains constant with an increase in financial leverage.
• C) firms might fail.
• D) none of the above.

---

Definitions:

Present Value

Today's value of a future money amount or sequence of cash flows, determined by a certain rate of return.

Initial Investment

The initial amount of money invested in a project or venture.

Financial Break-Even

The point at which total revenues equal total costs and expenses, leaving no net gain or loss.

Accounting Basis

Refers to the method under which income and expenses are recognized and reported. The two primary methods are cash basis and accrual basis accounting.