The MM Theory with Taxes Implies That Firms Should Issue

question 23

Multiple Choice

The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because:
I. Debt is more risky than equity
II. Bankruptcy and its attendant costs is a disadvantage to debt
III. The payment of personal taxes may offset the tax benefit of debt

• A) I only
• B) II only
• C) III only
• D) II and III only

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Definitions:

Pathways

Routes or courses that something takes to move or progress from one point to another, often used in reference to neural pathways in the brain.

Processes

A series of actions or steps taken to achieve a particular end.

Trichromatic Theory

A theory explaining color vision as a result of the retina containing three types of receptors that are sensitive to red, green, and blue wavelengths of light.

Opponent Process Theory

A psychological and neurological model that describes how humans perceive colors as the result of opposing responses between two sets of cones in the eyes.