The MM Theory with Taxes Implies That Firms Should Issue

question 46

Multiple Choice

The MM theory with taxes implies that firms should issue maximum debt.In practice, this is not true because:

• A)debt is more risky than equity.
• B)bankruptcy is a disadvantage to debt.
• C)firms will incur large agency costs of short term debt by issuing long term debt.
• D)Both A and B.
• E)Both B and C.

---

Definitions:

Tacit Knowledge

Knowledge that is difficult to transfer to another person by writing it down or verbalizing it, often gained through personal experience.

Job Knowledge

The understanding and information a person possesses regarding their job duties, responsibilities, and the necessary skills for performance.

Explicit Knowledge

Information or knowledge that is articulated, codified, and accessible in a tangible form, such as documents or databases.

Conditional

Subject to one or more conditions or requirements being met; made or granted on certain terms.