The Reason That MM Proposition I Does Not Hold in the Presence

question 21

Multiple Choice

The reason that MM Proposition I does not hold in the presence of corporate taxation is because:

• A)levered firms pay less taxes compared with identical unlevered firms.
• B)bondholders require higher rates of return compared with stockholders.
• C)earnings per share are no longer relevant with taxes.
• D)dividends are no longer relevant with taxes.
• E)All of the above.

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Definitions:

Single-Price Monopolist

A monopolist that charges all consumers the same price for its product or service.

Price Discrimination

The approach of pricing the identical product variably for different consumer segments, according to their readiness to spend.

Monopoly Profits

Extraordinary profits earned by a monopoly due to its unique position of having no competition in providing its goods or services, allowing it to set higher prices.

Single-Price Monopolist

Refers to a monopolist who charges all consumers the same price for its product, rather than price discriminating among different consumer groups.