1. After big stock price run ups, debt ratio falls, but firms tend to issue equity...

60.1K

Verified Solution

Question

Finance

1. After big stock price run ups, debt ratio falls, but firmstend to issue equity instead of debt. This observation is notconsistent with the trade-off theory of capital structure.
True
False
2. A conservative current asset investment policy implies thatrelatively large amounts of cash and inventories are carried, andsales are stimulated by the use of credit policy that providesliberal financing to customers and a corresponding high level ofaccounts receivable.
True
False
3. In the Baumol model of setting target cash balance, it isassumed that all cash flows are certain and that net cash outflowsoccur at a constant rate.
True
False

Answer & Explanation Solved by verified expert

4.2 Ratings (760 Votes)

Ans 1 False Trade off theory of capital structure is the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits In this case debt ratio is falling due to excess See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

1. After big stock price run ups, debt ratio falls, but firmstend to issue equity instead of debt. This observation is notconsistent with the trade-off theory of capital structure.TrueFalse2. A conservative current asset investment policy implies thatrelatively large amounts of cash and inventories are carried, andsales are stimulated by the use of credit policy that providesliberal financing to customers and a corresponding high level ofaccounts receivable.TrueFalse3. In the Baumol model of setting target cash balance, it isassumed that all cash flows are certain and that net cash outflowsoccur at a constant rate.TrueFalse