According to the Signaling Theory, Why Will a Firm with Unfavorable

Multiple Choice

According to the signaling theory, why will a firm with unfavorable prospects want to sell stock?

A) To share the losses with new investors
B) To increase bankruptcy cost with more debt
C) To skip the dividends payable on common stock
D) To maintain a reserve borrowing capacity
E) To have tax benefit/bankruptcy cost trade-off