The Modigliani and Miller (MM)articles Implicitly Assumed That Bankruptcy Did

question 73

True/False

The Modigliani and Miller (MM)articles implicitly assumed that bankruptcy did not exist.That led to the development of the "trade-off" model,where the firm's value first rises with the use of debt due to the tax shelter of debt,but later falls as more debt is added because the potential costs of bankruptcy begin to more than offset the tax shelter benefits.Under the trade-off theory,an optimal capital structure exists.

---

Definitions:

Personal Attributes

Individual characteristics or traits that define a person's behavior, attitude, and personality.

Stereotypes

Oversimplified and widely held beliefs or generalizations about a group of people, which often lead to misconceptions and biases.

Impression Management

The process by which individuals attempt to control or influence the perceptions others have of them, often through strategic self-presentation or behavior modification.

Environment

The surroundings or conditions in which a person, animal, or plant lives or operates.