Which of the following statements is consistent with the trade-off theory of capital structure?

Select one:

a.

There is only a trade-off theory of risk-return relationship. There is no trade-off theory of capital structure.

b.

Optimal capital structure occurs when the present value of tax savings on account of additional borrowing just offsets the increase in the present value of costs of distress.

c.

Optimal capital structure occurs when the benefits of limited liability are just offset by the value of the company's lawyers' claims.

d.

Optimal capital structure occurs when the shareholders' right to default is balanced by the bondholders' right to get interest and principal payments.