Which One of the Following Supports the Theory That the Value

question 58

Multiple Choice

Which one of the following supports the theory that the value of a firm increases as the firm's level of debt increases?

• A)M&M Proposition I without taxes
• B)M&M Proposition II without taxes
• C)M&M Proposition I with taxes
• D)Static theory of capital structure
• E)No theory suggests this.

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Definitions:

Par Value

The nominal or face value of a stock or bond as stated by the issuing company, not necessarily reflecting its market value.

Legal Capital

Minimum amount of capital that a corporation must leave in the company (cannot be withdrawn by stockholders) for the protection of the creditors.

Stated Value

A value assigned to no-par stock by the company's board of directors.