Jason is suggesting that his company issue debt in order to finance an upcoming project, even though the firm has large cash reserves. He believes the market is currently underpricing his firm’s stock, and would like investors to be convinced that the firm’s true value is much higher. Which of the following capital structure theories provide the best explanation for Jason’s suggestion?
Answer
trade-off model
pecking-order hypothesis
signaling model
managerial opportunism hypothesis
M & M capital structure modelJason is suggesting that his company issue debt in order to finance an upcoming project, even though the firm has large cash reserves. He believes the market is currently underpricing his firm’s stock, and would like investors to be convinced that the firm’s true value is much higher. Which of the following capital structure theories provide the best explanation for Jason’s suggestion?
Answer
trade-off model
pecking-order hypothesis
signaling model
managerial opportunism hypothesis
M & M capital structure model
