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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
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