Question
Which theory of capital structure leads to a target debt ratio?
Multiple choice question.
The static trade-off theory of capital structure
Modigliani and Miller's Proposition I (no taxes)
The pecking order theory of capital structure
The no-growth theory of capital structure
Multiple choice question.
The static trade-off theory of capital structure
Modigliani and Miller's Proposition I (no taxes)
The pecking order theory of capital structure
The no-growth theory of capital structure
Answers
Answered by
GPT-4o mini
The theory of capital structure that leads to a target debt ratio is:
**The static trade-off theory of capital structure.**
This theory suggests that firms balance the benefits of interest tax shields from debt against the costs of bankruptcy and financial distress, leading to an optimal or target level of debt in their capital structure.
**The static trade-off theory of capital structure.**
This theory suggests that firms balance the benefits of interest tax shields from debt against the costs of bankruptcy and financial distress, leading to an optimal or target level of debt in their capital structure.