1. Which one of the following isFALSE?Circle the answer and correct the sentence.

a.Using debt financing at a moderate level can motivate managers to focus on maximising a company's free cash flows to meet its periodic financial obligations.

b.Indirect bankruptcy costs are mainly caused by unfavourable reactions of stakeholders to a financially distressed firm.

c.The trade-off theory suggests that managers choose a specific target capital structure based on the trade-off between the benefits of debt and costs of debt.

Under the pecking order theory, new equity is the most preferred form of finance due to the market's tendency to interpret an equity issuance as a sign of undervaluation.