MM Proposition I with Taxes Is Based on the Concept

question 20

Multiple Choice

MM 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) the capital structure of the firm does not matter because investors can use homemade leverage.
• C) the firm is better off with debt based on the weighted average cost of capital.
• D) the value of the firm increases as total debt increases because of the interest tax shield.
• E) the cost of equity increases as the debt-equity ratio of a firm increases.

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Definitions:

Credit Card Receivables

The outstanding balances owed to a company from customers' credit card transactions, considered an asset.

Student Loans

Loans offered to students to finance their education, typically with terms that defer payments until after graduation.

Accrued Fees

Charges that have been incurred but not yet paid or recorded by the end of the accounting period.

Home Mortgages

Loans provided by financial institutions to individuals for the purchase of a home, secured by the property itself.