Which of the following is a reasonable conclusion from the Tradeoff theory of capital structure?
A) A high debt ratio will result in a maximum price of a firm's common stock.
B) A firm's common stock price will not be affected by the amount of debt a firm uses.
C) A low debt ratio will result in a maximum price for a firm's common stock.
D) Modest levels of debt have a more favorable impact on a firm's average cost of capital and stock price than no debt.
Answer: D
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