MM Proposition I with Taxes Is Based on the Concept

question 74

Multiple Choice

MM Proposition I with taxes is based on the concept that:

• A)the optimal capital structure is the one that is totally financed with equity.
• B)the capital structure of the firm does not matter because investors can use homemade leverage.
• C)the firm is better off with debt based on the weighted average cost of capital.
• D)the value of the firm increases as total debt increases because of the interest tax shield.
• E)the cost of equity increases as the debt-equity ratio of a firm increases.

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Definitions:

Internal Reports

are financial documents used within an organization, prepared for internal stakeholders to make decisions, not intended for external audiences.

Unit Cost

The cost assigned to a single unit of product, calculated by dividing the total cost by the number of units produced.

Manufacturing

The process of converting raw materials or components into finished goods through the use of tools, human labor, and machinery.

Financial Accounting

The field of accounting that provides economic and financial information for investors, creditors, and other external users.