Which of the Following Is Consistent with the Trade-Off Theory

question 48

Multiple Choice

Which of the following is consistent with the trade-off 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:

Specialize

To focus on a particular area of study or profession, gaining extensive knowledge or skill in that area.

Teratogen

An agent or condition, including viruses, drugs, and chemicals, that can impair prenatal development and result in birth defects or even death.

Prenatal Abnormalities

Defects or conditions that occur in a fetus during pregnancy, which can be structural, functional, or genetic.

Chromosomes

Filamentous entities located within the nucleus of both animal and plant cells, consisting of protein and a solitary molecule of deoxyribonucleic acid (DNA), responsible for bearing genetic information.