According to Modigliani and Miller,altering a Firm's Capital Structure Will

question 88

Multiple Choice

According to Modigliani and Miller,altering a firm's capital structure will not change a firm's value because

• A) taxes have no effect on capital structure decisions.
• B) the value of a firm is based on the earnings power of its assets.
• C) markets are not efficient and shareholders can be fooled by capital structure changes.
• D) bankruptcy costs rise when debt levels increase.
• E) the cost of equity falls as more debt is issued.

---

Definitions:

Insurance Premiums

The amounts paid for insurance coverage, typically charged monthly or annually, to maintain the insurance policy.

High Deductible

A high deductible refers to the larger initial amount paid by an insured person before insurance coverage for healthcare costs begins, often leading to lower premium costs.

Low-risk Drivers

Individuals who are considered to have a lower probability of filing an insurance claim due to their safe driving habits, often resulting in lower insurance premiums.

Lemons

A citrus fruit with a bright yellow color and sour taste, often used in cooking and beverages.