Question
Which of the following statements accurately describes implications and/or features of the alternative theories of capital structure discussed in lectures? a) The trade-off theory of
Which of the following statements accurately describes implications and/or features of the alternative theories of capital structure discussed in lectures?
a) The trade-off theory of capital structure suggests that as the effective corporate tax rate increases, all other things remaining equal, we would expect to see a reduction in debt levels.
b) The pecking-order theory of capital structure suggests that where the information asymmetry between the firm and the market for equity is low, there will be an increased probability of the firm issuing equity rather than debt.
c) The free-cash flow hypothesis suggests that as firms build up vast reserves of cash, beyond whats required for capital expenditure purposes, they are likely to decrease firm value by investing in negative NPV projects.
d) None of the above
e) More than one of the above
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