Question

Limitations of the fixed $k_o$ theory_____________.

• A. The theory concludes that there is no optimum capital structure
• B. It ignores the use of the favourable financial leverage
• C. It ignores taxes and does not consider transaction costs
• D. All the above

Answer 1

Answer: (D)

All the above

The limitations of such a theory are that it does not conclude any optimum capital structure for a company, it ignores the use of the favorable financial leverage set differently for different types of companies, and it does not consider the taxes and transaction cost in the formation of capital structure for a company.

Hence, option (D) is the correct answer.