All Other Things Being Equal, the Modigliani and Miller Model

question 138

Multiple Choice

All other things being equal, the Modigliani and Miller Model, modified for tax and bankruptcy costs concludes that:

• A)no matter what level of debt a company is operating at, increasing the percent of debt in the capital structure will increase the stock price. b. if a company has a very low percent debt, increasing the percent of debt in the capital structure will increase the stock price.
• B)and c. are correct.
• C)at moderate levels of debt, it is difficult to tell what will happen to the stock price (whether it will go up or down)if the percent debt in the capital structure is increased.
• D)there is no relationship between the percent of debt in the capital structure and the stock price.
• E)b. and c. are correct.

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Definitions:

European Nations

Countries located in Europe, characterized by diverse cultures, languages, and economies but often interconnected through political and economic unions.

Gold Standard

A currency regime where the national fiat currency's worth is directly pegged to gold.

Outflow Of Gold

refers to the movement of gold assets out of a country's economy, often highlighting trade imbalances or lack of confidence in the economy's standing.

Money Supply

The total amount of monetary assets available in an economy at a specific time, including cash, coins, and balances held in checking and savings accounts.