M&M Proposition II with Taxes

question 77

Multiple Choice

M&M Proposition II with taxes:

• A) has the same general implications as M&M Proposition II without taxes.
• B) states that capital structure is irrelevant to shareholders.
• C) supports the argument that business risk is determined by the capital structure decision.
• D) supports the argument that the cost of equity decreases as the debt-equity ratio increases.
• E) concludes that the capital structure decision is irrelevant to the value of a firm.

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Definitions:

Market- Return

The amount of profit or loss generated by an investment over a given period, often expressed as a percentage of the investment's initial cost.

Present Dividend

A dividend currently being paid out to shareholders from a company's earnings.

Intrinsic Value

The real or true value of a company, stock, currency or product determined through fundamental analysis without reference to its market value.

Technical Analysis

The evaluation of securities by means of studying past market data, primarily price and volume.