MM Proposition I,with Tax,supports the Theory That

question 74

Multiple Choice

MM Proposition I,with tax,supports the theory that

• A)the value of an unlevered firm is equal to the value of a levered firm plus the interest tax shield.
• B)the value of a firm is inversely related to the amount of leverage used by the firm.
• C)there is a positive linear relationship between the debt-to-equity ratio and firm value.
• D)a firm's cost of capital is the same regardless of the mix of debt and equity used by the firm.
• E)a firm's weighted average cost of capital increases as the debt-equity ratio of the firm increases.

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Definitions:

Profit

The financial gain acquired when the revenue generated from business activities exceeds the expenses, costs, and taxes needed to sustain the activity.

Industry Supply Curve

A graph that shows the relationship between the price of a good and the total output of the industry for that good.

Price Levels

The mean value of present prices for all goods and services created within the economy.

Output Levels

Refers to the quantity of goods or services produced by a firm or economy over a certain period of time.