Question $12$

$9$ pts

What does the Market Timing Hypothesis say the firm should do when determining it's capital structure?

It does not matter, as capital structure is irrelevant under this theory

Use internal capital first, followed by issuing debt when internal capital is exhausted, followed by

issuing external equity as a last resort.

Issue debt when it is overvalued, repurchase debt when it is undervalued. Issue equity when it is

overvalued, repurchase equity when it is undervalued.

Select the combination of debt and equity that maximizes firm value by balancing the tax shield associated with debt and the bankruptcy costs associated with debt.

The firm should use $100\%$ debt to maximize the value of the tax shield