JJJ Corphas $10 Million in Assets and Is Currently Financed with with 100

question 27

Multiple Choice

JJJ Corp.has $10 million in assets and is currently financed with 100 percent equity.The firm decides to switch to a 60 percent equity/40 percent debt structure and decides to sell $4 million of debt and use the proceeds to retire $4 million in equity today.This is an example of:

• A)underinvestment.
• B)active capital structure management.
• C)Modigliani-Miller theorem in practice.
• D)none of these.

---

Definitions:

Trust

The reliance on the integrity, strength, and ability of a person or entity, which forms the basis of relationships in social, economic, and business contexts.

Team Effectiveness Model

A framework for understanding the factors that lead to the success of teams, including elements such as leadership, communication, and roles.

Determinants

Factors or elements that contribute to a certain outcome or condition.

Trusting Relationships

Bonds between individuals or groups characterized by confidence, reliability, and mutual respect, often fundamental for successful cooperation.