MM Proposition I with Taxes Supports the Theory That

question 39

Multiple Choice

MM Proposition I with taxes supports the theory that:

• A)there is a positive linear relationship between the amount of debt in a levered firm and the firm's value.
• B)the value of a firm is inversely related to the amount of leverage used by the firm.
• C)the value of an unlevered firm is equal to the value of a levered firm plus the value of the interest tax shield.
• D)a firm's cost of capital is the same regardless of the mix of debt and equity used by the firm.
• E)a firm's weighted average cost of capital increases as the debt-equity ratio of the firm rises.

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Definitions:

First Ace

The initial occurrence of an ace in a series of card draws or during a specific card-related activity.

Probability

A numerical expression between 0 and 1 that represents the probability of a particular event happening.

Cards

Pieces of heavy paper or thin cardboard, typically rectangular in shape, used for playing a variety of games.

At Least

Indicates the minimum quantity or the smallest amount possible or required.