Which one of the following is the theory that a firm should borrow up to the point where the additional tax benefit from an extra dollar of debt equals the additional costs associated with financial distress from that additional debt?
A)M&M Proposition I, with taxes
B)M&M Proposition II, with taxes
C)M&M Proposition I, without taxes
D)Homemade leverage proposition
E)Static theory of capital structure

Question

Quizplus · Accepted Answer

The static theory of capital structure suggests that firms should borrow up to the point where the tax shield from additional debt is exactly offset by the costs of financial distress.

Which One of the Following Is the Theory That a Firm