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)static theory of capital structure
E)homemade leverage proposition

Question

Quizplus · Accepted Answer

The static theory of capital structure suggests that firms should balance the tax benefits of additional debt with the costs of potential financial distress, borrowing up to the point where these are equal.

Which One of the Following Is the Theory That a Firm