The tradeoff model of capital structure provides several insights to financial m
ID: 2732922 • Letter: T
Question
The tradeoff model of capital structure provides several insights to financial managers concerning optimal capital structure. Which of the following insights is false?
Other things equal, firms with high corporate tax rates should use less debt financing than firms with low tax rates.
Other things equal, firms whose value stems from intangible assets should use less debt financing than firms with few intangible assets.
Other things equal, firms with high business risk should use less debt financing than firms with low business risk.
Other things equal, firms with large amounts of marketable fixed assets should use more debt financing than firms whose value stems mostly from intangible assets.
1.Other things equal, firms with high corporate tax rates should use less debt financing than firms with low tax rates.
2.Other things equal, firms whose value stems from intangible assets should use less debt financing than firms with few intangible assets.
3.Other things equal, firms with high business risk should use less debt financing than firms with low business risk.
4.Other things equal, firms with large amounts of marketable fixed assets should use more debt financing than firms whose value stems mostly from intangible assets.
Explanation / Answer
Answer: Option 1
Other things equal, firms with high corporate tax rates should use less debt financing than firms with low tax rates.
Other things equal, firms with high corporate tax rates should use less debt financing than firms with low tax rates.
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