The trade-off theory of capital structure recognises the tax-shield benefit of debt financing,but also recognises that the benefit is offset by costs associated with debt financing.

Question

Quizplus · Accepted Answer

The statement accurately describes the key concept of the trade-off theory of capital structure, which balances the benefits and costs of debt financing in determining the optimal mix of debt and equity for a company's capital structure.

The Trade-Off Theory of Capital Structure Recognises the Tax-Shield Benefit