Which of the following are correct according to capital stru…
Which of the following are correct according to capital structure theory? I. Pecking order theory predicts that firms stockpile internally-generated cash.II. Pecking order theory predicts a positive relationship between a firm’s profit level and its debt level.III. According to static tradeoff theory, optimal capital structure equates the marginal tax savings to the increased bankruptcy costs from an additional dollar of debt.IV. According to static tradeoff theory, a firm with low probability of default and large taxable income base will have a tendency to have more debt in its optimal capital structure.
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