The MM Theory with Taxes Implies That Firms Should Issue

question 46

Multiple Choice

The MM theory with taxes implies that firms should issue maximum debt.In practice, this is not true because:

• A)debt is more risky than equity.
• B)bankruptcy is a disadvantage to debt.
• C)firms will incur large agency costs of short term debt by issuing long term debt.
• D)Both A and B.
• E)Both B and C.

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