In a World with Corporate Taxes but No Possibility of Financial

question 50

Multiple Choice

In a world with corporate taxes but no possibility of financial distress, the value of the firm is maximized when the:

• A) firm uses no debt in its capital structure.
• B) firm uses no equity in its capital structure.
• C) firm uses a debt-equity ratio of 1.0.
• D)corporate tax rate approaches 100%.

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Definitions:

Sinus

Cavities or air spaces within the bones of the skull and face that are connected to the nasal cavities, playing roles in respiration and the production of mucus.

Tubercle

A small rounded projection or nodule, especially one that is part of the structure of a bone.

Genu Valgum

A medical condition characterized by the inward angulation of the knees, commonly referred to as "knock-knees."

Genu Varum

A condition characterized by the outward bowing of the legs, commonly referred to as "bowlegs."