In the Context of the M&M Irrelevance Theorem, in a World

question 1

Multiple Choice

In the context of the M&M Irrelevance theorem, in a world with no taxes and no bankruptcy costs,

• A)the firm's value is unaffected by capital structure.
• B)the firm should maximize the value of the firm by maximizing the firm's debt.
• C)the firm should borrow to the point where the marginal benefits of debt equal the marginal costs.
• D)the firm cannot make a decision about the optimal capital structure with the existing information.

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Definitions:

Expected Value

The expected value is the long-run average value of repetitions of an experiment it represents, often used in probability and statistics.

Poisson Distribution

A probability distribution that represents the likelihood of observing a certain number of events within a specified time or space interval.

Poisson Distribution

A probability distribution that expresses the probability of a given number of events occurring in a fixed interval of time or space, assuming these events occur with a known constant rate and independently of the time since the last event.

Discrete Random Variable

A variable that takes on a countable number of distinct values, often used in probability theory and statistics.