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An implication of the trade-off theory of capital structure decisions is that a company achieves its...

An implication of the trade-off theory of capital structure decisions is that a company achieves its optimal debt-equity ratio where the present value of the debt tax shield equals the present value of bankruptcy and agency costs.

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Answer #1

N implication of the trade off theory of capital structure decisions is that a company achieve its optimal debt equity ratio when the present value of the debt tax shield equals the present value of bankruptcy and agency cost.

True

A company can maximize its value by having a capital structure that equal the date tax shield with the present value of the bankruptcy and agency costs. In this way the company can achieve it's optimal capital structure.

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