Over the years, researchers have proposed numerous theories to explain what firms' capital structures should look like. Some of the assumptions in Modigliani and Miller's trade-off theory are listed. Which assumption illustrates the critical difference between trade-off and signaling theory? There are no brokerage costs. Investors can borrow at the same interest rate as corporations. The personal income tax rate is zero. Managers and investors have the same information. Suppose that signaling theory is correct. Harris Inc. is planning a large expansion and needs to raise new capital. If management thinks the firm's stock is undervalued and its prospects are very good while investors are unaware of these opinions, will management want to raise capital using debt or equity? Equity Debt