Author Question: If the static trade-off theory is correct, then which of the following does NOT lead to a more ... (Read 69 times)

2125004343 · **on:** Apr 25, 2021

Question 1

If a company is near bankruptcy and shareholders approve a long-shot project with a negative NPV this is an example of
◦ a direct cost of financial distress.
◦ an indirect cost of financial distress.
◦ an agency benefit of debt.
◦ an agency cost of debt.

Question 2

If the static trade-off theory is correct, then which of the following does NOT lead to a more leveraged optimal capital structure?
◦ High corporate tax rate
◦ Lower financial distress costs
◦ Greater agency benefits (i.e., reduced managerial waste of free cash flow) from debt
◦ Greater agency costs from debt

Koolkid240 · **Reply #1 on:** Apr 25, 2021

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