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  3. 1. after big stock price run ups, debt ratio falls

1. After big stock price run ups, debt ratio falls, but firms tend to issue equity...

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Finance

1. After big stock price run ups, debt ratio falls, but firmstend to issue equity instead of debt. This observation is notconsistent with the trade-off theory of capital structure.

True

False

2. A conservative current asset investment policy implies thatrelatively large amounts of cash and inventories are carried, andsales are stimulated by the use of credit policy that providesliberal financing to customers and a corresponding high level ofaccounts receivable.

True

False

3. In the Baumol model of setting target cash balance, it isassumed that all cash flows are certain and that net cash outflowsoccur at a constant rate.

True

False

Answer & Explanation Solved by verified expert
4.2 Ratings (760 Votes)
Ans 1 False Trade off theory of capital structure is the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits In this case debt ratio is falling due to excess    See Answer
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1. After big stock price run ups, debt ratio falls, but firmstend to issue equity instead of debt. This observation is notconsistent with the trade-off theory of capital structure.TrueFalse2. A conservative current asset investment policy implies thatrelatively large amounts of cash and inventories are carried, andsales are stimulated by the use of credit policy that providesliberal financing to customers and a corresponding high level ofaccounts receivable.TrueFalse3. In the Baumol model of setting target cash balance, it isassumed that all cash flows are certain and that net cash outflowsoccur at a constant rate.TrueFalse

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