According to the Signaling Theory, When Should a Firm Use

Multiple Choice

According to the signaling theory, when should a firm use debt to finance beyond the normal target capital structure?

A) When the debt/assets ratio is greater than one
B) When marginal tax shelter benefits are equal to marginal bankruptcy-related costs
C) When investors and managers have identical information about the firm's prospects
D) When the firm has favorable prospects
E) When the firm is entirely equity financed