M & M Proposition I with Taxes Is Based on the Concept

question 25

Multiple Choice

M & M Proposition I with taxes is based on the concept that:

• A)the optimal capital structure is the one that is totally financed with equity.
• B)the capital structure of a firm does not matter because investors can use homemade leverage.
• C)a firm's WACC is unaffected by a change in the firm's capital structure.
• D)the value of a firm increases as the firm's debt increases because of the interest tax shield.
• E)the cost of equity increases as the debt-equity ratio of a firm increases.

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Definitions:

Financially Independent

A state where an individual or entity can cover their living expenses without relying on external financial support, such as employment income, funding from family, or government aid.

Developmental Problem

Difficulties or delays in the physical, emotional, cognitive, or social growth of children or adolescents compared to normative development stages.

Identity Confusion

A period of uncertainty and exploration about oneself, often regarding issues like career choice or sexual orientation, typically occurring during adolescence.

Commit Suicide

The act of intentionally causing one's own death.