The Reason That MM Proposition I Without Taxes Does Not

question 9

Multiple Choice

The reason that MM Proposition I without taxes does not hold in the presence of corporate taxation is because:

• A)levered firms pay less taxes compared with identical unlevered firms.
• B)bondholders require higher rates of return than stockholders do.
• C)earnings per share are no longer relevant with taxes.
• D)dividends become a tax shield.
• E)debt is more expensive than equity.

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