In a World Without Taxes, M&M Proposition I Contends That

question 223

Multiple Choice

In a world without taxes, M&M Proposition I contends that:

• A) The cost of equity is dependent upon the debt-ratio of the firm.
• B) A firm's cost of equity varies with its cost of debt.
• C) The total value of the firm remains constant regardless of the debt-equity mixture applied.
• D) A firm's WACC also determines its cost of equity.
• E) The cost of capital is a linear function with a positive slope.

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Definitions:

Interest Rates

The amount charged, expressed as a percentage of principal, by lenders to borrowers for the use of money as a loan, influencing economic activity.

Unemployment Insurance

A government program that provides temporary financial assistance to unemployed workers who have lost their jobs through no fault of their own.

Contributory Program

A social welfare system that requires individuals to contribute through taxes or payments in order to be eligible for benefits or services.

Medicare Reform Bill

Legislation aimed at modifying and improving Medicare, the U.S. federal health insurance program for people who are 65 or older, and others with specific conditions.