Which One of the Following Is an Implication of M&M

question 21

Multiple Choice

Which one of the following is an implication of M&M Proposition II without taxes?

• A)A firm's optimal capital structure is 100 percent debt.
• B)WACC is unaffected by the capital structure of a firm.
• C)WACC decreases as the debt-equity ratio increases.
• D)A firm's capital structure is irrelevant.
• E)The risk of equity is affected by both financial and operating leverage.

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Definitions:

Cost Of Goods Sold

The total cost of manufacturing or acquiring the products sold by a company during a specific period, excluding indirect costs.

Acid-Test Ratio

A liquidity metric that measures a company's ability to pay off its current liabilities without relying on the sale of inventory.

Balance Sheet

A statement detailing an organization's assets, liabilities, and owners' equity on a certain date.

Sales On Account

Transactions in which a customer purchases goods or services but payment is delayed, typically recorded as receivables on the seller's balance sheet.