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Windows of Opportunity in capital structure says that 1)Firms take advantage of favorable market conditions when raising capital 2)Firms use opportunities to signal investors when

Windows of Opportunity in capital structure says that

1)Firms take advantage of favorable market conditions when raising capital

2)Firms use opportunities to signal investors when raising capital

3)Firms raise capital with the objective to constrain their managers

4)Firms take the opportunity to raise capital more cheaply in the presence of information asymmetry

Which of the following two statements is correct?

S1: Classical capital structure theory was spearheaded by a paper by Miller and Modigliani (MM); MM argue that capital structure decisions are a result of managers sending signals to the investors in the market using their capital structure decisions.

S2: Classical capital structure theory was spearheaded by a paper by Miller and Modigliani (MM); MM argue that firms follow a pecking order and thus end up with their capital structures by raising capital based on a list of preferences.

1)Both, S1 and S2 are false

2)Both, S1 and S2 are correct

3)S2 is correct but S1 is false

4)S1 is correct but S2 is false

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