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.

Identify how warranties and insurance policies can affect consumer utility and economic outcomes.

Analyze the probabilities of independent events in the context of risk and insurance.

Understand the basic principles of insurance and risk management.

Comprehend the concept of moral hazard and how it impacts market efficiency.

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Definitions:

Working Memory

The capacity of the brain to hold and manipulate information in the short term for cognitive tasks such as learning, reasoning, and comprehension.

Short-Term Memory

A part of the memory system where small amounts of information can be kept for a short period of time, typically from a few seconds to a minute.

Functional Fixedness

A cognitive bias that limits a person's ability to use an object only in the way it is traditionally used, hindering problem-solving.

Confirmation Bias

A bias towards finding, comprehending, selecting, and reminiscing information that affirms one's prior beliefs or conjectures.