According to the static trade‐off theory, as the proportion of debt in the capital structure increases, which of the fol

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According to the static trade‐off theory, as the proportion of
debt in the capital structure increases, which of the following
is least likely?
Group of answer choices
The value of the firm initially rises, but then falls.
The after‐tax cost of debt initially falls and then rises.
The cost of equity rises.
Which of the following is least likely an
assumption for MM Proposition I—without taxes?
Group of answer choices
There are no transaction costs and no bankruptcy costs.
Financing and investment decisions are interdependent.
Investors can borrow and lend at the risk‐free rate.
Consider the following statements:
Statement 1: A higher degree of
information asymmetry generally tends to encourage greater use of
debt financing relative to equity financing.
Statement 2: Companies in countries with
lower taxes on dividends generally have relatively lower debt in
their capital structures.
Which of the following is most likely?
Group of answer choices
Both statements are correct.
Only Statement 2 is correct.
Only Statement 1 is correct.