The Modigliani and Miller (MM)articles Implicitly Assumed That Bankruptcy Did

question 73

True/False

The Modigliani and Miller (MM)articles implicitly assumed that bankruptcy did not exist.That led to the development of the "trade-off" model,where the firm's value first rises with the use of debt due to the tax shelter of debt,but later falls as more debt is added because the potential costs of bankruptcy begin to more than offset the tax shelter benefits.Under the trade-off theory,an optimal capital structure exists.

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Definitions:

Static

Relating to or characterized by a fixed or unchanging condition, lacking movement, action, or change.

Communication Process

The series of steps through which information is transmitted and received between senders and receivers, including encoding, media selection, decoding, and feedback.

Encoding

The process of translating an idea or thought into a message consisting of verbal, written, or nonverbal symbols (such as gestures), or some combination of them.

Communicates

The act of conveying information or expressing feelings and ideas through verbal, non-verbal, written, or digital means.