The Modigliani and Miller Hypothesis Does Not Work in the "Real

question 59

Multiple Choice

The Modigliani and Miller hypothesis does not work in the "real world" because

• A) interest expense is tax deductible, providing an advantage to debt financing.
• B) higher levels of debt increase the likelihood of bankruptcy, and bankruptcy has real costs for any corporation.
• C) both A and B.
• D) dividend payments are fixed and tax deductible for the corporation.