A Key Underlying Assumption of MM Proposition I Without Taxes

question 28

Multiple Choice

A key underlying assumption of MM Proposition I without taxes is that:

• A)financial leverage increases risk.
• B)individuals can borrow at lower rates than corporations.
• C)individuals and corporations borrow at the same rate.
• D)managers always act to maximize the value of the firm.
• E)corporations are all-equity financed.

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Definitions:

Standard Costing System

An accounting method that applies estimated costs to product costs for the purposes of budgeting and inventory valuation.

Direct Labour-Hours

The total hours worked by employees directly involved in manufacturing a product.

Variable Manufacturing Overhead

Manufacturing costs that vary in total directly with changes in production volume, such as utility costs or raw material consumptions.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a specific product.