• Stockholders have an incentive to take risks when the firm is in financial distress. That's because the stockholders would get more money if the firm invests into riskier projects rather than into safer projects. ["TRUE", "FALSE"]
• According to the signaling theory, by taking an additional loan the firm sends a negative signal to the investors that the firm is in financial distress. ["TRUE", "FALSE"]
• Under the pecking order theory firms try to avoid sending signals to the investors, which is the opposite from what the signaling theory says. ["TRUE", "FALSE"]
• Studies have shown that some firms choose their capital structure in such a way that it brings the most after-tax cash to its investors. For example, if a firm faces a 28% corporate income tax rate, its stockholders face a 15% income tax rate, and its creditors face a 23% income tax rate, then such firm may choose to have more debt (is the underlined part true or false?).