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Which of the following is NOT a prediction of the tradeoff model of capital structure...

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Accounting

Which of the following is NOT a prediction of the tradeoff model of capital structure in which firms balance the tax benefits of debt against expected bankruptcy costs.

Select one:

a. Firms with less volatile cash flows should borrow more than firms with more volatile cash flows.

b. When firms need to raise money for new investments, they will do so first using retained earnings.

c. More profitable firms should rely more heavily on debt compared with less profitable firms.

d. Firms that invest heavily in tangible assets which can easily be traded on secondary markets should borrow more than firms whose assets are mostly intangible.

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