The "Pure Modigliani and Miller Result" Establishes,under Restrictive Assumptions,that the Firm's

question 89

Multiple Choice

The "Pure Modigliani and Miller Result" establishes,under restrictive assumptions,that the firm's stock price will be maximized if it uses virtually 100 percent debt.Which of the following real world conditions does the most to limit real world corporate debt-to-assets ratios to far less than 100 percent?

• A) There are brokerage costs.
• B) At high levels of debt revenues decline.
• C) Investors can't really borrow at the same rate as corporations.
• D) Interest rates increase as the debt-to-assets ratio rises.
• E) Dividends are relevant in the real world.

---

Definitions:

Free Trade

The elimination of tariffs, quotas, and other trade barriers between countries to allow for the unrestricted exchange of goods and services.

Autarky Price

The price of goods in a closed economy that does not engage in international trade.

Domestic Supply

The total amount of goods and services produced within a country that is available for purchase.

Domestic Demand

The total demand for goods and services within a country's borders, excluding exports and including imports.