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(a) Explain what is the Trade-off theory of capital structure? What is the Pecking-Order theory of capital structure? Explain clearly. (b) If we observe that

(a) Explain what is the Trade-off theory of capital structure? What is the Pecking-Order theory of capital structure? Explain clearly.

(b) If we observe that highly profitable firms have less debt/equity (leverage) ratio, is it consistent with the Trade-Off theory or the Pecking-Order theory of capital structure? Explain why.

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