1. Which would cause firms to start using less debt according to the tradeoff models?

Higher tax rates

Higher Interest rates

Higher Financial Distress Costs

Higher Sales

2. Which is NOT an assumption of Miller and Modigliani’s Capital Structure irrelevance theory?

No Taxes, Brokerage, or Bankruptcy Costs

Cost of Equity not affected by level of debt

Investors have the same information as Managers

All of the above are assumptions

3. Optimistic Managers with good investment opportunities are likely to ____________.

Issue new stock

Pay out a large dividend

Borrow additional Funds

All of the Above

4. Which type of firm would likely have the highest levels of debt?

a) Fashion Designers

b) Internet Firms

c) Pharmaceutical Companies