Question

Which of the following is/are correct?

I. The pecking-order theory states that firms prefer to issue equity rather than debt if internal financing is insufficient.
II. The pecking-order theory suggests that profitable firms use more debt.
III. The trade-off theory of capital structure implies that there is an optimal level of debt for firms, given the benefits of tax shields and the costs of financial distress
a. I only
b. I and II only
c. III only
d. all of the above
e. none of the above

Answer 1

c. III only

Step-by-step explanation:

The correct option is - c. III only

Reason -

III option is correct because The trade-off theory states that there is an optimal level of debt for firms, given the benefits of tax shields and the costs of financial distress