What Is the Change in Value for a Firm with $1

question 68

Multiple Choice

What is the change in value for a firm with $1 million in equity, $1 million in permanent debt at a 10% interest rate, and a 35% tax rate if MM I is modified to recognize corporate taxes?

• A)value increases by $35,000
• B)value increases by $100,000
• C)value increases by $350,000
• D)value increases by $700,000

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Definitions:

Bell-Shaped-Curve

A graphical representation of a normal distribution in statistics, where the apex represents the highest point or the mean, and the curve tapers equally on both sides.

Market Structures

The classification of markets based on the competition level and the nature of product differentiation among firms within an industry.

Retained Earnings

are the portion of a company's profits that are held back and not distributed to shareholders as dividends, often reinvested in the business.

R&D

Short for Research and Development, it refers to the activities undertaken by companies or governments in the innovation and improvement of products and technologies.