The MM Theory with Taxes Implies That Firms Should Issue

question 51

Multiple Choice

The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because:
I.debt is more risky than equity;
II.bankruptcy and its attendant costs are a disadvantage to debt;
III.the payment of personal taxes may offset the tax benefit of debt

• A)I only
• B)II only
• C)III only
• D)II and III only

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Definitions:

Subscriptions Receivable

Amounts owed to a company for goods or services that have been subscribed to but not yet paid for by customers.

Current Liability

Financial obligations or debts of a company due within a year, including accounts payable, taxes owed, and short-term loans.

Sales Tax

A tax levied by the government on the sale of goods and services.

Current Maturities

The portion of a long-term debt that is due to be paid within the next year.