Reference no: EM133058472

Statement 1: The static trade-off theory states that debt payments are tax-deductible and it is cheaper than equity financing hence the mix of debt and equity is relevant to the firm's value.
Statement 2: The static trade-off theory proposes that the capital structure is irrelevant to the value of a firm in which the firm's value is not affected by the choice of finance adopted.
Statement 3: The static trade-off theory proposes that the capital structure matters on the market value of the firm in which managers must identify the best mix of debt and equity.
Statement 4: The static trade-off theory states that the value of the firm is dependent on the expected future earnings.
Statement 5: The static trade-off theory states that debt financing can decrease the weighted average cost of capital (WACC) but it also increases the risk to a company which will somewhat offset the decrease in WACC.
a. All statements are true b.Statements 1, 2 and 3 are true c.Statements 1, 3 and 4 are true
d.Statements 2, 4 and 5 are true e.Statements 3, 4 and 5 are true f. All statements are false