Asked by
D5eel Aljuaid
on Dec 09, 2024
Verified
The static theory of capital structure:
A) Assumes that the firm's operations and assets are fixed.
B) Assumes that the firm's operations are fixed but that its assets are increasing.
C) Supports increasing the leverage employed by a firm when the probability of financial distress becomes significant.
D) Equates the benefits of equity financing to the costs associated with the probability of financial distress.
E) States that a firm should operate at the point where the cost of capital is maximized.
Static Theory
A theoretical or analytical approach that assumes variables do not change over time or are observed at a single point in time, ignoring dynamics and fluctuations.
Capital Structure
The combination of borrowing and ownership capital that a business employs to fund its activities and expansion.
Financial Distress
A condition where a firm finds it challenging or impossible to cover its financial commitments to lenders.
- Comprehend the static model of capital structure and its consequences for the valuation of a firm.
Verified Answer
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Learning Objectives
- Comprehend the static model of capital structure and its consequences for the valuation of a firm.