If Demand Is Perfectly Inelastic, the Demand Curve Is Vertical

question 21

True/False

If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.

Understand the role and implications of corporate and personal taxes in capital structure decisions according to the MM and Miller models.

Recognize the assumptions and limitations of theoretical models such as the MM and Miller models, especially concerning taxes and bankruptcy costs.

Identify the factors influencing a firm's decision to adjust its debt ratio and the principle of the trade-off theory.

Analyze the effect of capital structure on a firm’s weighted average cost of capital (WACC) and its valuation.

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Definitions:

Linear Perspective

A technique in art and photography that creates the illusion of depth on a flat surface by converging lines at a single point.

Moon Illusion

A perceptual phenomenon in which the Moon appears larger near the horizon than it does while higher up in the sky.

Perceived Distance

The subjective estimation or impression of the space between oneself and an object or between two points.

Smaller Retinal Image

refers to the phenomenon where objects that are farther away from the observer project a smaller image on the retina than those that are close by.