1. Which would cause firms to start using less debt according to the tradeoff models?
Higher tax rates
Higher Interest rates
Higher Financial Distress Costs
Higher Sales
2. Which is NOT an assumption of Miller and Modigliani’s Capital Structure irrelevance theory?
No Taxes, Brokerage, or Bankruptcy Costs
Cost of Equity not affected by level of debt
Investors have the same information as Managers
All of the above are assumptions
3. Optimistic Managers with good investment opportunities are likely to ____________.
Issue new stock
Pay out a large dividend
Borrow additional Funds
All of the Above
4. Which type of firm would likely have the highest levels of debt?
a) Fashion Designers
b) Internet Firms
c) Pharmaceutical Companies