The Proposition That a Company Borrows Up to the Point

question 87

Multiple Choice

The proposition that a company borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs is called:

• A) the static theory of capital structure.
• B) M&M Proposition I, with taxes.
• C) M&M Proposition II, with taxes.
• D) the pecking-order theory.
• E) the open markets theorem.

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