Which One of the Following Statements Is True

question 205

Multiple Choice

Which one of the following statements is true?

• A) The total value of a firm decreases as debt is initially added to an all equity firm, if taxes are considered.
• B) The tax shield applies to both debt and equity financing.
• C) The ideal capital structure minimizes the total tax liability.
• D) Capital structure does matter when taxes are included.
• E) The general conclusions of M&M Proposition II do not hold when taxes are considered.

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Definitions:

Technology

The application of scientific knowledge for practical purposes, especially in industry and the development of innovations.

Production Possibility Frontier

A curve demonstrating the maximum potential output levels of two goods or services an economy can achieve when all resources are efficiently utilized.

Economic

Relating to the principles and practices of economics or the economy; the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.

Entrepreneur

An individual who starts and runs a new business, taking on financial risks in the hope of profit.