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1.According to signaling theory, investors view debt as a signal of firm value. Thus, firms with low anticipated profits will take on a low level

1.According to signaling theory, investors view debt as a signal of firm value. Thus, firms with low anticipated profits will take on a low level of debt. On the other hand firms with high anticipated profits will take on high levels of debt. Please explain why?

2.What are the agency costs between shareholders and debt holders of a company in distress?

3.What is pecking order hypothesis? Please briefly explain. (5 pts)

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