Which of the Following Correctly Completes the Following: M&M I

question 164

Multiple Choice

Which of the following correctly completes the following: M&M I with taxes shows ___________________.

• A) The value of an unlevered firm exceeds the value of a levered firm by the present value of the interest tax shield.
• B) A levered firm can increase its value by reducing debt.
• C) The optimal amount of leverage for a firm is not possible to determine.
• D) The value of a levered firm is equal to its after-tax EBIT discounted by the unlevered cost of capital.
• E) There is a linear relationship between the amount of debt in a levered firm and its value.

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Definitions:

Respective Promises

Promises made by two or more parties where each party's promise is considered in regard to, or in relation to, the promises of the other party or parties.

Quasi-Contract

A legal concept where the court imposes a contractual obligation on a party who has not actually entered into a contract, to prevent unjust enrichment.

Mutual Assent

In contract law, the state of mind that exists between an offeror and an offeree once a valid offer has been accepted and once the parties know what the terms are and have agreed to be bound by them. Also known as “a meeting of the minds.”

Unenforceable Contract

A contract that cannot be upheld by a court because of some rule of law.