In Miller's Model,when the Quantity [(1 - Tc)(1 - Ts)

question 36

Multiple Choice

In Miller's model,when the quantity [(1 - Tc) (1 - Ts) = (1 - Tb) ],then:

• A) the firm should hold no debt.
• B) the value of the levered firm is greater than the value of the unlevered firm.
• C) the tax shield on debt is exactly offset by higher personal taxes paid on interest income.
• D) the tax shield on debt is exactly offset by higher levels of dividends.
• E) the tax shield on debt is exactly offset by higher capital gains.

---

Definitions:

Reinforcement

A concept in behavioral psychology where behavior is strengthened or weakened by the consequences that follow.

Punishment

The application of an undesirable stimulus or removal of a desirable one following a behavior, with the aim of decreasing that behavior's occurrence.

Freudian Theory

A set of psychoanalytic theories developed by Sigmund Freud, focusing on unconscious motives, conflicts, and childhood experiences as determinants of personality and behavior.

Breadwinner

Traditionally, the family member whose earnings are the primary source of financial support for the household.