22. Part A

Part B

Under 'signaling' and 'market timing' theories of capital structure, we might most accurately say that... firms might be more willing to issue new equity when they perceive the current stock price is rather high, and shareholders are typically eager for this opportunity to increase ownership. O firms are wary of issuing new shares when they perceive the current share price to be rather high as they fear the increased expectations of the shareholders. O firms might be more willing to issue new equity when they perceive the current stock price is rather high, but potential shareholders are wary of this possibility O firms are wary of issuing new shares when they perceive the current share price to be rather high as they fear the increased scrutiny of the bondholders. The trade-off theory of capital structure attempts to utilize which of the following dynamics? Taxes and distress costs are irrelevant to the consideration of firm capital structure. Tax deductibility of interest payments usually encourages some corporate debt. However, at some point the acceleration of costs of debt and equity that accompany more debt discourage additional borrowing. Tax deductibility of dividend payments usually discourage use of corporate debt. O Usually the costs of debt and equity increase in direct proportion to the amount of debt that a company undertakes. Thus, it usually benefits a company to take on as much debt as it may qualify for