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The tradeoff theory of capital structure advocates that: I. Firms with exceptionally high depreciation...

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Accounting

The tradeoff theory of capital structure advocates that:
I. Firms with exceptionally high depreciation expenses would have the tendency to increase the percentage of debt included in the optimal capital structure of a firm.
II. Firms with low probabilities of financial distress would have the tendency to increase the percentage of debt included in the optimal capital structure of a firm.
III. Firms with very low tax rates or minimal taxable income would have the tendency to increase the percentage of debt included in the optimal capital structure of a firm.
IV. Firms would tend to have fixed optimal capital structures over time.
V. The optimal capital structure of a firm balances the tax savings from an additional dollar of debt to the increased bankruptcy costs related to that additional dollar of debt.
Answer choices:
I and II only
II and V only
II, III, and V only
III, IV, and V only

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