Which Statement Concerning Capital Structure Theory Is NOT True

question 33

Multiple Choice

Which statement concerning capital structure theory is NOT true?

• A)The major contribution of Miller's theory is that it demonstrates that personal taxes decrease the value of using corporate debt.
• B)Under MM with zero taxes, financial leverage has no effect on a firm's value.
• C)Under MM with corporate taxes, the value of a levered firm exceeds the value of the unlevered firm by the product of the tax rate times the market value dollar amount of debt.
• D)Under MM with corporate taxes, r_s increases with leverage, and this increase exactly offsets the tax benefits of debt financing.

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Definitions:

Subduction Zone

A region of the Earth's crust where one tectonic plate moves under another, often creating a trench and volcanic activity.

Mantle-derived

Originating or derived from the Earth's mantle, the thick layer of rock below Earth's crust and above the core.

Meteoric Water

Water originating from precipitation, including rain, snow, or hail, that infiltrates the Earth's surface.

Large Magma Chambers

Underground pools of molten rock that feed volcanoes and can store huge volumes of magma beneath the Earth's surface.