MM Proposition I with Taxes Supports the Theory That

question 46

Multiple Choice

MM Proposition I with taxes supports the theory that:

• A) there is a positive linear relationship between the amount of debt in a levered firm and its value.
• B) the value of a firm is inversely related to the amount of leverage used by the firm.
• C) the value of an unlevered firm is equal to the value of a levered firm plus the value of the interest tax shield.
• 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 rises.

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