MM Proposition I,without Taxes,supports the Argument That

question 76

Multiple Choice

MM Proposition I,without taxes,supports the argument that

• A)business risk determines the return on assets.
• B)it is completely irrelevant how a firm arranges its finances.
• C)the cost of equity rises as leverage rises.
• D)a firm should borrow money up to the point where the cost of debt equals the cost of equity.
• E)financial risk is determined by the debt-equity ratio.

---

Definitions:

Pure Competition

A market structure characterized by a large number of small firms, homogenous products, and free entry and exit, leading to price determination by supply and demand.

Pure Monopoly

A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.

Entry Barriers

Obstacles that make it difficult for new competitors to enter an industry, including high startup costs, access to technology, and strict regulations.

Monopolistic Competition

A market structure in which many companies sell products that are similar but not identical, allowing them to have a degree of market power.