Which of These Is a Positive Externality

question 6

Multiple Choice

Which of these is a positive externality?

• A) New car prices decrease when steel tariffs are removed.
• B) Production costs are reduced when waste disposal laws are not enforced.
• C) Assistance is given to disaster victims.
• D) A star basketball player's presence on television increases revenue at sports bars.

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Definitions:

M&M Proposition I

The value of the firm is independent of its capital structure.

Financial Distress Costs

The costs associated with a company's financial troubles, which may include bankruptcy costs, reduced sales, and impaired ability to conduct business.

Actual Firm Value

The real value of a company, considering both tangible and intangible factors, and not just the market value or book value.

Optimal Capital Structure

The ideal mix of debt, equity, and other financing sources that minimizes a company's cost of capital while maximizing its stock price.