Which of the Following Statements Concerning Capital Structure Theory Is

question 17

Multiple Choice

Which of the following statements concerning capital structure theory is NOT CORRECT?

• A) The major contribution of Miller's theory is that it demonstrates that personal taxes decrease the value of using corporate debt.
• B) Under MM with zero taxes, financial leverage has no effect on a firm's value.
• C) Under MM with corporate taxes, the value of a levered firm exceeds the value of the unlevered firm by the product of the tax rate times the market value dollar amount of debt.
• D) Under MM with corporate taxes, rs increases with leverage, and this increase exactly offsets the tax benefits of debt financing.
• E) Under MM with corporate taxes, the effect of business risk is automatically incorporated because rsL is a function of rsU.

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Definitions:

Dividends Received

Represents payments received by investors for owning shares in a company, typically issued from the company's profits.

Interest Paid

The total amount of interest payments made on borrowings (e.g., loans, bonds) during a given period.

Cash Flow Statement

A financial statement that shows the flow of cash in and out of a business during a specific period, highlighting operating, investing, and financing activities.

Accumulated Depreciation

The cumulative total of all depreciation charges applied to an asset from the time it was first used.