The Reason That MM Proposition I Does Not Hold in the Presence

question 69

Multiple Choice

The reason that MM Proposition I does not hold in the presence of corporate taxation is because:

• A)levered firms pay less taxes compared with identical unlevered firms.
• B)bondholders require higher rates of return compared with stockholders.
• C)earnings per share are no longer relevant with taxes.
• D)dividends are no longer relevant with taxes.
• E)All of the above.

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Definitions:

Negotiable Instruments

Legal documents guaranteeing the payment of a specific amount of money, either on demand or at a set time, and which can be transferred by endorsement or delivery.

Timely Notice

Prompt notification within a designated or reasonable period, often required by law or agreement to uphold rights or fulfill obligations.

Dishonor

The state of being in disgrace or disrepute, often relating to a failure to fulfill an obligation, especially a financial one.

Unauthorized Checks

Checks that are issued and used without the account holder's knowledge or consent, typically an illegal activity.