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.