What Causes the Change in Optimal Strategy When Taxes Are

question 96

Multiple Choice

What causes the change in optimal strategy when taxes are added back to the M&M theorem?

• A) The fact that we have added taxation differentially
• B) The fact that both dividends and interest are taxable to the receiver
• C) The fact that it changes the effect that an increase in leverage has on the stockholders' expected returns
• D) The fact that it changes the volatility of stockholders' expected returns

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Definitions:

Stimulus Discrimination

The ability to differentiate between similar stimuli and respond only to the specific stimulus that is associated with a reinforcement.

Stimulus Generalization

The phenomenon where a response to a specific stimulus becomes associated with similar stimuli, resulting in a similar response.

Type I Punishment

A method of behavior modification that involves the application of an aversive stimulus following an unwanted behavior, aimed at decreasing the frequency of that behavior.

Type II Punishment

A form of punishment where a positive stimulus is removed following undesirable behavior to decrease the likelihood of that behavior occurring again.