When Modigliani and Miller Revised Their Original Model to Include

question 106

Multiple Choice

When Modigliani and Miller revised their original model to include taxes,they concluded that

• A) firms should reduce their degree of financial leverage.
• B) tax avoidance does not alter a firm's value.
• C) tax increases lower a firm's value.
• D) firms should use only debt in their capital structure.
• E) taxes also have no bearing on the capital structure decision.

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Definitions:

Breakthrough

Refers to a significant and sudden advance or discovery that opens up new possibilities in a field of study, technology, or industry.

Continuous

An ongoing, uninterrupted process, action, or flow that does not have a clear beginning or end.

Product

Any item or service that is created through a process and is offered to the market to satisfy a need or want.

Feasibility Determination

The process of assessing the practicality and viability of a proposed project or system.