M & M Proposition I with Tax Supports the Theory

question 6

Multiple Choice

M & M Proposition I with tax supports the theory that:

• A)a firm's weighted average cost of capital decreases as the firm's debt-equity ratio increases.
• 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 cost of equity increases as the debt-equity ratio of the firm decreases.

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Definitions:

Resource-Based View

A perspective in strategic management that focuses on the importance of a firm's internal capabilities in achieving competitive advantage.

Strategy Development

The process of defining an organization's direction, making decisions on allocating resources, and pursuing actions to achieve long-term goals.

Market-Based View

A strategic perspective that emphasizes the importance of external market conditions in shaping a firm's strategy and competitive advantage.

Industry Attractiveness

The desirability of an industry to firms and investors, based on factors like profitability, growth potential, and competition levels.