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  3. 7.) the trade-off theory tells us that the capital

7.) The trade-off theory tells us that the capital structure decision involves a tradeoff between...

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Finance

7.) The trade-off theory tells us that the capital structure decision involves a tradeoff between the costs of debt financing and the benefits of debt financing.

True

False

8.)

The MM irrelevance capital structure theory proved that a firms value is unaffected by its capital structure. But their study was based on some strong assumptions that: _____

There are no brokerage costs.

There are no corporate taxes and personal taxes.

There are no bankruptcy costs and agency costs.

There is no asymmetric information problem, and all investors can borrow at the same rate as corporations.

All of the above.

9.)

The MM model with corporate taxes is a special case of the Miller model with personal taxes. If the personal tax rate on debt income (Td) and the personal tax rate on stock income (Ts) are the same, the Miller model becomes to the MM model with corporate taxes.

True

False

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