The trade-off theory was seriously taken under consideration after the debate on the theorem of Modigliani-Miller (Iqbal
et al., 2012).
Trade-off theory‟s original version came into being after the debate of Modigliani-Miller theorem. When the
irrelevance theorem was added with the corporate income tax, this favored benefit for debt, i-e; it shields the earnings
from taxes. Firm manager evaluates and analyzes the various costs and benefits of several alternatives of leverage plans.
Most of the time it is presumed that interior solution should be obtained so that balance can be acquired between marginal
costs and benefits.