The Reason That MM Proposition I Does Not Hold Good

question 59

Multiple Choice

The reason that MM Proposition I does not hold good in the presence of corporate taxes is because:

• A) Levered firms pay lower taxes when compared with identical unlevered firms
• B) Bondholders require higher rates of return compared with stockholders
• C) Earnings per share are no longer relevant with taxes
• D) Dividends are no longer relevant with taxes

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Definitions:

Units

A standard measure or quantity used to specify or quantify the amount of a product, service, or resource.

Prices

The amount of money required to purchase goods or services.

Marginal Cost

The additional cost incurred by producing one more unit of a product or service, crucial for economic and pricing decisions.

Marginal Revenue

The additional income received from selling one more unit of a product or service.