If Miller and Modigliani Had Incorporated the Costs of Bankruptcy

question 29

True/False

If Miller and Modigliani had incorporated the costs of bankruptcy into their model, it is unlikely that they would have concluded that 100% debt financing is optimal.

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Definitions:

Buyers' Utility

The satisfaction or benefit that consumers receive from purchasing and consuming goods and services.

Firm's Revenues

The total amount of money received by a company from its business activities, before any expenses are subtracted.

MU-to-P Ratio

The ratio of marginal utility (MU) to price (P), used in consumer choice theory to determine the optimal consumption bundle.