Which of the Following Statements About the Relation of the M&M

question 42

Multiple Choice

Which of the following statements about the relation of the M&M propositions to the real world is true?

• A)While the propositions state that capital structure does not matter, in the real world capital structure can matter.
• B)Although the propositions are based on the assumption that financial markets are perfect, all of the conclusions drawn work in the real world as well.
• C)Although some of the conclusions don't work in the real world, it is true that a firm's cost of capital is independent of the firm's capital structure choice.
• D)Both B and C are true statements.

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Definitions:

Expected ROE

The projected Return on Equity, estimating the amount of net income returned as a percentage of shareholders' equity.

Required Rate Of Return

The lowest yearly return rate on an investment that motivates individuals or corporations to invest in a specific security or project.

Dividends Per Share

The amount of dividends that a company pays out to its shareholders for each share held, typically expressed on an annual basis.

Growth In Dividends

An increase in the amount of dividends paid out to shareholders over time, indicating a company's growing profitability and stability.