Which of the Following Correctly Completes the Following: M&M I

question 133

Multiple Choice

Which of the following correctly completes the following: M&M I with taxes shows ___________________.

• A) The value of an unlevered firm exceeds the value of a levered firm by the present value of the interest tax shield.
• B) A levered firm can increase its value by reducing debt.
• C) The optimal amount of leverage for a firm is not possible to determine.
• D) The value of a levered firm is equal to its after-tax EBIT discounted by the unlevered cost of capital.
• E) There is a linear relationship between the amount of debt in a levered firm and its value.

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