The MM Theory with Taxes Implies That Firms Should Issue

question 51

Multiple Choice

The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because:
I.debt is more risky than equity;
II.bankruptcy and its attendant costs are a disadvantage to debt;
III.the payment of personal taxes may offset the tax benefit of debt

• A)I only
• B)II only
• C)III only
• D)II and III only

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Definitions:

Federal Outlays

Expenditures or spending by the federal government, including on programs, services, and interest on debt.

Federal Government Budget

An annual financial statement presenting the government's proposed revenues and spending for a financial year.

Servicing Debt

The process of paying interest and principal on borrowed funds, typically on a regular basis.

Trade Deficit

A situation where a country's imports of goods and services exceed its exports, leading to a negative balance of trade.