18. If studies show that all the firms that have issued shares (stock) over the past several years were all debt-free (i.e., never borrowed), which one capital structure theory does this observation contradict? (A) Pecking Order, (B) Market Conditions, (C) Trade off. Answer: A 19. The 2017 tax laws have limited the tax deduction of interest payment (expense) for corporations. In other words, companies might not be able to fully realize the tax benefit of borrowing. If the trade-off theory is correct, would you think that some firms would (A) borrow more than before, (B) borrow less than before, (C) maintain the same level of debt as before? Answer: 20. If the Market Conditions theory of capital structure is true, which action do you expect a firm to take after its stock's price-earning ratio climbs way above its historical average? (A) repurchases its shares, (B) issues new shares, uses only internal funds, (D) increases dividends