The Proposition That a Firm Borrows Up to the Point

question 42

Multiple Choice

The proposition that a firm 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.
• C)M & M Proposition II.
• D)the capital asset pricing model.
• E)the open markets theorem.

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Definitions:

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