What Causes the Change in Optimal Strategy When Taxes Are

question 96

Multiple Choice

What causes the change in optimal strategy when taxes are added back to the M&M theorem?

• A) The fact that we have added taxation differentially
• B) The fact that both dividends and interest are taxable to the receiver
• C) The fact that it changes the effect that an increase in leverage has on the stockholders' expected returns
• D) The fact that it changes the volatility of stockholders' expected returns

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Definitions:

Orbital

A mathematical function that describes the wave-like behavior of either one electron or a pair of electrons in an atom.

Pyrrolidine

An organic compound with the molecular formula C4H9N, consisting of a five-membered ring containing four carbon atoms and one nitrogen atom.

Lone Pair

A pair of valence electrons in an atom that is not shared with another atom and does not participate in bonding.

Physostigmine

An alkaloid used as a drug to treat glaucoma and anticholinergic poisoning, acting as a reversible cholinesterase inhibitor.