The trade-off theory

1. According to the trade-off theory, how is capital structure determined?

2. How can leverage alter the incentives of managers?

3. According to the trade-off theory, how is capital structure determined?

Which type of firm is more likely to experience a loss of customers in the event of financial distress?

a. Campbell Soup Company or Intuit Inc. (a maker of accounting software)?

b. Allstate Corporation (an insurance company) or Reebok International (a footwear and clothing firm)?

Solution: