 You are given a background paragraph that describes one or more causal or physical relationships, such as a relationship in economics, scientific law, or nature. You need to come up with a fictional story that makes use of the concepts or the relationship described in the provided paragraph. Make sure that your story does not repeat the relation in the given paragraph (e.g., by avoiding verbatim copies of the given paragraph). Start by reading the background paragraph, and determine what relationship(s) are in the paragraph. Write a story that involves the relationship(s) that you determined are in the background paragraph. Try to use your own words as much as possible and not repeat the background paragraph. Feel free to make up places and events as long as they tie back to the background paragraph in a way that you can ask a question about.
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Question: Background Paragraph: The trade-off theory of capital structure is the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits. The classical version of the hypothesis goes back to Kraus and Litzenberger[1] who considered a balance between the dead-weight costs of bankruptcy and the tax saving benefits of debt. Often agency costs are also included in the balance. This theory is often set up as a competitor theory to the pecking order theory of capital structure. A review of the literature is provided by Frank and Goyal.[2]

An important purpose of the theory is to explain the fact that corporations usually are financed partly with debt and partly with equity. It states that there is an advantage to financing with debt, the tax benefits of debt and there is a cost of financing with debt, the costs of financial distress including bankruptcy costs of debt and non-bankruptcy costs (e.g. staff leaving, suppliers demanding disadvantageous payment terms, bondholder/stockholder infighting, etc.). The marginal benefit of further increases in debt declines as debt increases, while the marginal cost increases, so that a firm that is optimizing its overall value will focus on this trade-off when choosing how much debt and equity to use for financing.

Answer: Bob is a financial analyst. He used to work for company A. Bob noticed that company A is mostly financed by debt. Recently, he changed job and now working as a financial analyst for another company, company B. Company B has completely different culture than company A. Company B is mostly financed by equity.


Question: Background Paragraph: Animals may avoid becoming prey by living out of sight of predators, whether in caves, burrows, or by being nocturnal. Nocturnality is an animal behavior characterized by activity during the night and sleeping during the day. This is a behavioral form of detection avoidance called crypsis used by animals to either avoid predation or to enhance prey hunting. Predation risk has long been recognized as critical in shaping behavioral decisions. For example, this predation risk is of prime importance in determining the time of evening emergence in echolocating bats. Although early access during brighter times permits easier foraging, it also leads to a higher predation risk from bat hawks and bat falcons. This results in an optimum evening emergence time that is a compromise between the conflicting demands.Another nocturnal adaptation can be seen in kangaroo rats. They forage in relatively open habitats, and reduce their activity outside their nest burrows in response to moonlight. During a full moon, they shift their activity towards areas of relatively dense cover to compensate for the extra brightness.

Answer: John was studying the species in African Savannah. He noticed that elands, which is a prey animal, are basically nocturnal. On the other hand, wild boars, another prey animal, are not nocturnal.


Question: Background Paragraph: Precipitation can impact infiltration in many ways. The amount, type and duration of precipitation all have an impact. Rainfall leads to faster infiltration rates than any other precipitation events, such as snow or sleet. In terms of amount, the more precipitation that occurs, the more infiltration will occur until the ground reaches saturation, at which point the infiltration capacity is reached. Duration of rainfall impacts the infiltration capacity as well. Initially when the precipitation event first starts the infiltration is occurring rapidly as the soil is unsaturated, but as time continues the infiltration rate slows as the soil becomes more saturated. This relationship between rainfall and infiltration capacity also determines how much runoff will occur. If rainfall occurs at a rate faster than the infiltration capacity runoff will occur.

Answer:
Steve is planning on building his house and needs to decide on what area to build in. He wants an area with low infiltration of the soil. He has narrowed down his choices to Miami, which has heavy rainfalls, and no snow, and Green Bay, which has more snowfall than rainfall.


