Which of the Following Statements Concerning Capital Structure Theory Is

question 30

Multiple Choice

Which of the following statements concerning capital structure theory is NOT CORRECT?

• A) under mm with zero taxes, financial leverage has no effect on a firm's value.
• B) under mm with corporate taxes, the value of a levered firm exceeds the value of the unlevered firm by the product of the tax rate times the market value dollar amount of debt.
• C) under mm with corporate taxes, rs increases with leverage, and this increase exactly offsets the tax benefits of debt financing.
• D) under mm with corporate taxes, the effect of business risk is automatically incorporated because rsl is a function of rsu.
• E) the major contribution of miller's theory is that it demonstrates that personal taxes decrease the value of using corporate debt.

---

Definitions:

Muscle Spasms

Involuntary contractions of a muscle or group of muscles, often experienced as a sudden and painful tightening.

Effective Percent

The portion, expressed as a percentage, that represents the efficiency or effectiveness of a given process, treatment, or action.

People

Human beings collectively, often referred to within the context of society, communities, or groups.

Mania

A mental state characterized by extremely elevated mood, energy, and activity, often associated with bipolar disorder.