MM Proposition II,with Taxes

question 73

Multiple Choice

MM Proposition II,with taxes

• A)reaches the final conclusion that the capital structure decision is irrelevant to the value of a firm.
• B)reveals how the interest tax shield relates to the value of a firm.
• C)supports the argument that business risk is determined by the capital structure employed by a firm.
• D)has the same general implications as MM Proposition II,without taxes.
• E)supports the argument that the cost of equity decreases as the debt-equity ratio increases.

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Definitions:

Employment

The condition of having paid work.

Unemployment

The situation in which individuals who are capable of working and actively seeking a job are unable to find employment.

Full Employment

Full employment refers to a situation where all available labor resources are being used in the most efficient way possible, with no involuntary unemployment.

Equilibrium GDP

The level of Gross Domestic Product at which the total quantity of final goods and services produced equals the total quantity demanded.