Question
Under trade-off theory, what determines the optimal amount of debt?
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Answer
Where marginal tax-shield benefit equals marginal distress cost.
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Question
How does a typical startup's capital structure differ from that of a mature firm?
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Answer
Startups are equity-heavy; mature firms can support more debt.
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Question
What capital structure is typical in the growth stage of a firm's life cycle?
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Answer
Mostly equity, sometimes with convertible debt.
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Question
Why can mature firms usually use more debt than younger firms?
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Answer
They have stable cash flows and established credit.
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