Modigliani and Miller Argue That When the Firm Has No

question 85

Multiple Choice

Modigliani and Miller argue that when the firm has no acceptable investment opportunities, it should

• A) close its doors.
• B) distribute the unneeded funds to the owners.
• C) lower its cost of capital.
• D) retain the funds until an acceptable project arises.

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Definitions:

LIFO Advantage

A financial benefit that comes from using the Last In, First Out method of inventory valuation, often resulting in lower taxes in periods of inflation.

Rising Prices

A situation in an economy where the general level of prices for goods and services is increasing, often referred to as inflation.

Holding Gains

Holding gains are the increased values of assets that a company holds, realized when the asset is sold or revalued.

FIFO Cost Flow

An inventory valuation method where the cost of the earliest goods purchased are the first to be recognized as cost of goods sold.