Because _____________, Equity in a Leveraged Firm Can Be Considered

question 364

Multiple Choice

Because _____________, equity in a leveraged firm can be considered a call option on the firm's assets.

• A) of the M&M capital structure irrelevance theorem
• B) stockholders have unlimited liability for the debts of the firm
• C) the possible loss on a share of common stock is limited to the initial investment
• D) the bondholders can elect to "walk away" leaving the stockholders holding the bag
• E) call options are more prevalent than put options

---

Definitions:

Soviet Model

An economic and political system found in the former Soviet Union, characterized by state ownership of resources, central planning, and one-party rule.

Karl Marx

A 19th-century philosopher, economist, and socialist who analyzed the effects of capitalism and proposed a revolutionary class struggle leading to a society with no class distinctions.

Public Ownership

Ownership of assets by the government or a government entity, rather than by private individuals or organizations.

Laissez-faire

An economic system in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, and tariffs.