M&M Proposition I with Taxes Is Based on the Concept

question 111

Multiple Choice

M&M Proposition I with taxes is based on the concept that:

• A) The optimal capital structure is the one that is totally financed with equity.
• B) The capital structure of the firm does not matter because investors can use homemade leverage.
• C) The firm is better off with debt based on the weighted average cost of capital.
• D) The value of the firm increases as total debt increases because of the interest tax shield.
• E) The cost of equity increases as the debt-equity ratio of a firm increases.