In a World of No Corporate Taxes If the Use

question 38

Multiple Choice

In a world of no corporate taxes if the use of leverage does not change the value of the levered firm relative to the unlevered firm is known as:

• A) MM Proposition III that the cost of stock is less than the cost of debt.
• B) MM Proposition I that leverage is invariant to market value.
• C) MM Proposition II that the cost of equity is always constant.
• D) MM Proposition I that the market value of the firm is invariant to the capital structure.
• E) MM Proposition III that there is no risk associated with leverage in a no tax world.

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Definitions:

Dishonor

The refusal or inability to accept or pay a bill of exchange, promissory note, or other credit instrument when due.

Real Defenses

Legitimate legal defenses available in disputing the validity or enforceability of negotiable instruments.

Personal Defenses

Legal justifications or excuses that an individual can claim to defend against blame or legal liability.

Holders In Due Course

Individuals or entities that have acquired a negotiable instrument in good faith and for value, thus having certain protections against defenses and claims that could be asserted against the prior holders.