The MM Theory with Taxes Implies That Firms Should Issue

question 38

Multiple Choice

The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because:

• A) debt is more risky than equity.
• B) bankruptcy is a disadvantage to debt.
• C) firms will incur large agency costs of short term debt by issuing long term debt.
• D) both debt is more risky than equity; and bankruptcy is a disadvantage to debt.
• E) both bankruptcy is a disadvantage to debt; and firms will incur large agency costs of short term debt by issuing long term debt.

---

Definitions:

Bootstrap Sample

A resampling technique used in statistics where repeated samples are drawn with replacement from an original dataset.

Replacement

Replacement is the act of substituting or exchanging something with a new or different version.

Original Sample

The initial group of participants or observations collected for analysis or experimentation before any manipulation or selection takes place.

Bootstrap Confidence Interval

A statistical technique for estimating the uncertainty of a parameter by resampling with replacement.