M&M Proposition I with Taxes Is Based on the Concept

question 76

Multiple Choice

M&M 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) capital structure is irrelevant because investors and companies have differing tax rates.
• C) WACC is unaffected by a change in the company's capital structure.
• D) the value of a taxable company increases as the level of debt increases.
• E) the cost of equity increases as the debt-equity ratio increases.

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