MM Proposition I,without Taxes,assumes That

question 9

Multiple Choice

MM Proposition I,without taxes,assumes that

• A)debt is riskless.
• B)individuals and corporations can borrow at the same rate.
• C)firms can borrow at the risk-free rate.
• D)individuals and firms are taxed at the same rate thereby making taxes irrelevant.
• E)all firms will prefer an unlevered capital structure.

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Definitions:

Cash Payments

Outflows of cash to settle obligations or purchase goods and services.

Total Cost

The sum of all expenses incurred in producing a product or providing a service, including fixed and variable costs.

Credit Sales

Sales made on credit, where the buyer is allowed to pay the seller at a later date, as opposed to immediate payment transactions.

Cash Inflow

The total amount of money being transferred into a business, typically measured over a certain period of time.