Which One of the Following Is an Implication of M&M

question 78

Multiple Choice

Which one of the following is an implication of M&M Proposition II,without taxes?

• A)A firm's optimal capital structure is 100 percent debt.
• B)WACC is unaffected by the capital structure of a firm.
• C)WACC decreases as the debt-equity ratio increases.
• D)A firm's capital structure is irrelevant.
• E)The risk of equity depends on both the degree of financial leverage and the riskiness of the firm's operations.

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Definitions:

Single-Price Monopoly

A monopolistic market structure where the monopolist charges the same price for every unit of the product sold to every consumer.

Economically Inefficient

A situation where resources are not used in the most productive way, leading to wasted potential output or outcomes.

Profit-Maximizing Output

The level of production at which a business achieves the highest possible profit, where marginal cost equals marginal revenue.

Marginal Revenue

Marginal Revenue is the increase in income generated from the sale of one additional unit of a product or service, crucial for determining the optimal level of output for a firm.