a) Chapter 17 refers to the Static Tradeoff Theory, whereby there are some factors associated with issuing debt that are assumed to INCREASE firm value, while there are other factors that are assumed to lead to a DECREASE in firm value. These factors include (but are not limited to): tax shield, costs of financial distress (including agency costs), other agency costs of debt and equity, signaling effects of capital issuance, growth, and personal taxes. Choose any 3 of these factors and briefly discuss how they affect the capital structure decision (be sure to specify whether they incentivize an increase or decrease in debt).

b) Briefly discuss the key differences between the Static Tradeoff Theory and Pecking-Order Theory, including their respective implications for the optimal level of debt in a firm.