Modigliani and Miller's Second Article,which Assumed the Existence of Corporate

question 65

True/False

Modigliani and Miller's second article,which assumed the existence of corporate income taxes,led to the conclusion that a firm's value would be maximized,and its cost of capital minimized,if it used (almost)100% debt.However,this model did not take account of bankruptcy costs.The existence of bankruptcy costs leads to the assumption of an optimal capital structure where the debt ratio is less than 100%.

---

Definitions:

Dynamic Self-Regulatory

The ongoing process of controlling one’s behavior, emotions, or thoughts in response to changing situations or in pursuit of personal goals.

Self-Esteem Regulation

The process of maintaining and adjusting one’s feelings of self-worth and self-value in response to social interactions and personal achievements.

Personality Disorder

A type of mental disorder characterized by enduring maladaptive patterns of behavior, cognition, and inner experience, exhibited across many contexts and deviating from those accepted by the individual's culture.

Narcissistic

Characterized by excessive self-focus, self-admiration, and a lack of empathy for others, often seen in narcissistic personality disorder.