In Miller's Model, When the Quantity (1 − T_C)(1 −

question 36

Multiple Choice

In Miller's model, when the quantity (1 − T_C) (1 − T_pE) = (1 − T_p) , then

• A)the firm should hold no debt.
• B)the value of the levered firm is greater than the value of the unlevered firm.
• C)the tax shield on debt is exactly offset by higher personal taxes paid on interest income.
• D)the firm should be financed by 100 percent equity.

---

Definitions:

Coupon Rate

The rate of interest on a bond paid yearly, illustrated as a fraction of its par value.

Par Value

The face value of a bond or stock as stated by the issuer, which may differ from its market value. For bonds, it typically represents the amount to be repaid at maturity.

Annual Interest

The percentage of a sum of money charged for its use over a year.

Zero-Coupon Bond

A debt security that does not pay interest (coupon) during its life but is sold at a discount from its face value, with the total face value being paid to the holder at maturity.