Question
Based on the static theory, what should the managers attempt to maximize and minimize while developing capital structure policy?
Multiple choice question.
Maximize debt and minimize equity
Maximize the tax shield benefit of debt and minimize financial distress costs
Minimize the tax shield benefit of debt and maximize financial distress costs
Maximize equity and minimize debt
Multiple choice question.
Maximize debt and minimize equity
Maximize the tax shield benefit of debt and minimize financial distress costs
Minimize the tax shield benefit of debt and maximize financial distress costs
Maximize equity and minimize debt
Answers
GPT-4o mini
Based on the static trade-off theory, managers should attempt to:
**Maximize the tax shield benefit of debt and minimize financial distress costs.**
This theory suggests that a firm should find an optimal capital structure that balances the benefits of using debt (such as tax shields) with the costs associated with potential financial distress that can arise from excessive debt levels.
**Maximize the tax shield benefit of debt and minimize financial distress costs.**
This theory suggests that a firm should find an optimal capital structure that balances the benefits of using debt (such as tax shields) with the costs associated with potential financial distress that can arise from excessive debt levels.