Which of the following statements about the trade-off theory of capital structure is most correct?
The trade-off theory can be used to set a precise optimal structure for any given business.
The trade-off theory tells us that businesses should use almost 100 percent debt financing.
The trade-off theory tells us that businesses should use almost no debt financing.
The trade-off theory tells us that businesses should use some debt financing, but not too much.
The trade-off theory is based on the premise that preferred stock can be substituted (traded off) for common stock.