The Tradeoff theory of capital structure suggests that if a firm moves from zero debt in its capital structure to moderate usage of debt,the result is an increase in a firm's
A)stock price.
B)cost of equity.
C)dividend payout.
D)both A and C.

Question

Quizplus · Accepted Answer

The Tradeoff theory suggests that using moderate debt can increase a firm's stock price due to the tax shield benefits of debt, outweighing the costs of financial distress at low levels of debt.

The Tradeoff Theory of Capital Structure Suggests That If a Firm