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.

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Definitions:

Expatriates

Employees assigned from headquarters or another location to work in a foreign market.

Headquarters

The central office or main location where a company's executive management and key administrative functions are located.

Foreign Market

Markets outside the domestic boundaries of a company where it conducts or aims to conduct business.

Meganational Companies

Large corporations that operate in multiple countries around the world, often exerting significant economic and political influence.