HI,

please find the attached question and explain them in detailed and word format.

: 1. Most financial managers measure debt ratios from their companies' book balance sheets. Many financial economists emphasize ratios from marketvalue balance sheets. Which is the right measure in principle? Does the trade-off theory propose to explain book or market leverage? How about the pecking-order theory? 2. The trade-off theory relies on the threat of financial distress. But why should a public corporation ever have to land in financial distress? According to the theory, the firm should operate at the top of the curve in Figure 18.2. Of course market movements or business setbacks could bump it up to a higher debt ratio and put it on the declining, right-hand side of the curve. But in that case, why doesn't the firm just issue equity, retire debt, and move to back up to the optimal debt ratio? What are the reasons why companies don't issue stockor enough stockquickly enough to avoid financial distress? 3. Show how the option delta changes as the stock price rises relative to the exercise price. Explain intuitively why this is the case. (What happens to the option delta if the exercise price of an option is zero? What happens if the exercise price becomes indefinitely large?)