correct answer

( trade off theory - market leverage) (a decision to reduce the likelihood of financial distress by retirement of debt means that existing debt is acquired at market value, and that the resulting decrease in interest tax shields is based on the market value of the retired debt. Similarly, a decision to increase interest tax shields by increasing debt requires that new debt be issued at current market prices.)

I don't understand what that means

thanks a lot

26. Leverage measures Most financial managers measure debt ratios from their companies' book balance sheets. Many financial economists emphasize ratios from market value balance sheets. Which is the right measure in principle? Does the trade-off theory propose to explain book or market leverage? How about the pecking-order theory