The "Pure Modigliani and Miller Result" Establishes,under Restrictive Assumptions,that the Firm's

question 89

Multiple Choice

The "Pure Modigliani and Miller Result" establishes,under restrictive assumptions,that the firm's stock price will be maximized if it uses virtually 100 percent debt.Which of the following real world conditions does the most to limit real world corporate debt-to-assets ratios to far less than 100 percent?

• A) There are brokerage costs.
• B) At high levels of debt revenues decline.
• C) Investors can't really borrow at the same rate as corporations.
• D) Interest rates increase as the debt-to-assets ratio rises.
• E) Dividends are relevant in the real world.

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Definitions:

Rate Of Return

Refers to the gain or loss on an investment over a specified time period, expressed as a percentage of the investment's cost.

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A professional authorized to sell and service insurance policies, representing either one or multiple insurance companies.

Annuity

A monetary tool that disburses a set sequence of payments to a user, predominantly aimed at serving as a financial resource for retirees.

Rate Of Return

The upward or downward movement in an investment's value across a defined duration, detailed as a percentage of its initial expenditure.