MM Proposition I Without Taxes Is Used to Illustrate

question 24

Multiple Choice

MM Proposition I without taxes is used to illustrate:

• A)the value of an unlevered firm equals that of a levered firm.
• B)that one capital structure is as good as another.
• C)leverage does not affect the value of the firm.
• D)capital structure changes have no effect stockholder's welfare.
• E)All of the above.

---

Definitions:

Adjusting Entry

A journal entry made in accounting records at the end of an accounting period to allocate income and expenditure to the appropriate years.

Transactions

Events that are recognized in the financial records, affecting the financial position and performance of a company.

Accrual Basis

An accounting method where transactions are recorded when they are earned or incurred, regardless of when cash is exchanged.

Cash Basis

An accounting method where revenues and expenses are recorded only when cash is received or paid out.