Why Does MM Proposition I Not Hold in the Presence

question 9

Multiple Choice

Why does MM Proposition I not hold in the presence of corporate taxes?

• A)Levered firms pay lower taxes when compared with identical unlevered firms.
• B)Bondholders require higher rates of return compared with stockholders.
• C)Earnings per share are no longer relevant with taxes.
• D)Dividends are no longer relevant with taxes.

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Definitions:

Variable-Ratio

In behavioral psychology, a schedule of reinforcement where a response is rewarded after an unpredictable number of responses.

Reinforcement

In psychology, any event that strengthens or increases the likelihood of a specific response or behavior by providing a consequence an individual finds rewarding.

Local Theater

A venue for performing arts in a community, providing a stage for live performances such as plays, musicals, and other theatrical productions.

Positive Reinforcement

A method in behavior science that increases the likelihood of a behavior by following it with a desirable outcome or reward.