The tradeoff theory weighs ________ of debt that result from shielding cash flows from taxes against the costs of financial distress associated with leverage.

Question

Quizplus · Accepted Answer

The tradeoff theory of capital structure suggests that firms balance the tax benefits of debt financing against the costs of financial distress that come with higher levels of leverage. The tax shield on debt interest payments is a primary benefit of using debt.

The Tradeoff Theory Weighs ________ of Debt That Result from Shielding