A Major Contribution of the Miller Model Is That It

question 13

Multiple Choice

A major contribution of the Miller model is that it demonstrates,other things held constant,that

• A) personal taxes increase the value of using corporate debt.
• B) personal taxes lower the value of using corporate debt.
• C) personal taxes have no effect on the value of using corporate debt.
• D) financial distress and agency costs reduce the value of using corporate debt.
• E) debt costs increase with financial leverage.

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Definitions:

Opportunity Cost

The value of the best alternative forgone when an item or activity is chosen.

Monetary Costs

Expenses measured in terms of the amount of money expended or required to purchase goods, services, or assets.

Alternative Activities

Options or activities that can be chosen as alternatives to the current activity being engaged in, often considered in the context of opportunity cost.

Comparative Advantage

The ability to make something at a lower opportunity cost than other producers face.