The MM Theory with Taxes Implies That fiRms Should Issue

question 13

Multiple Choice

The MM theory with taxes implies that firms should issue maximum debt.In practice, this is not true because:

• A)debt is more risky than equity.
• B)bankruptcy is a disadvantage to debt.
• C)firms will incur large agency costs of short term debt by issuing long term debt.
• D)Both A and B.
• E)Both B and C.

---

Definitions:

Uncertainty Avoidance

A cultural dimension that describes the extent to which people in a society are uncomfortable with ambiguity and risk.

Individual Differences

The way in which factors such as skills, abilities, personalities, perceptions, attitudes, values, and ethics differ from one individual to another.

Consensus

A general agreement among members of a specific group or community.

Glass Ceiling

A transparent barrier that keeps women from rising above a certain level in organizations.