According to the trade-off theory,the capital structure is a trade-off between:

Question

Quizplus · Accepted Answer

The trade-off theory suggests that a company's optimal capital structure is a balance or"trade-off" between tax savings from debt financing and the financial distress costs associated with high levels of debt. As a result, option C (tax savings and financial distress costs) is the correct choice. Option A is incorrect because it does not accurately reflect the trade-off theory. Option B is incorrect because the trade-off is not between high and low target debt ratios, but rather between the benefits and costs of debt financing. Option D is incorrect because it is not a comprehensive reflection of the trade-off theory.

According to the Trade-Off Theory,the Capital Structure Is a Trade-Off