Consider the trade$-$off theory of capital structure and the market timing theory in answering this question.

A company can borrow at a favourable rate, due to low interest rates, but chooses not to do so$,$ due to the increased financial risk. Instead, it issues equity, despite the market not valuing its equity in excess of the company$$s internal valuation.

Required:

Discuss which of the two abovementioned theories bests describes the scenario and provide a motivation for your answer.