The MM Theory with Taxes Implies That Firms Should Issue

question 1

Multiple Choice

The MM theory with taxes implies that firms should issue maximum debt.In practice, this is not true because

• A)debt is more risky than equity.
• B)bankruptcy and its attendant costs are a disadvantage to debt.
• C)the payment of personal taxes may offset the tax benefit of debt.
• D)bankruptcy and its attendant costs are a disadvantage to debt, and the payment of personal taxes may offset the tax benefit of debt.

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Definitions:

Liquidation

is the process of bringing a business to an end and distributing its assets to claimants, often resulting from bankruptcy.

Divestiture

The process of selling off a business division, investment, or asset by a company, often as a strategy to focus on core operations, cut losses, or raise capital.

Acquisition

The process of one company purchasing most or all of another company's shares to gain control of that company.

Merger

The combination of two or more companies into a single entity, often to enhance competitiveness or expand market reach.