Which of the Following Is Consistent with the Original Formulation

question 83

Multiple Choice

Which of the following is consistent with the original formulation of the Modigliani and Miller Capital Structure Theorem?

• A)A firm's composite cost of capital decreases as financial leverage is used.
• B)A firm's common stock price falls as financial leverage is used.
• C)A firm's composite cost of capital and common stock price are unaffected by the amount of financial leverage used by the firm.
• D)A firm's composite cost of capital increases as operating leverage is used.
• E)A firm's common stock price rises as operating leverage is used.

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Definitions:

Errors of Straightness

The variation from the desired straight line in the path or surface of a mechanical part.

Diameter

The length of a straight line passing from side to side through the center of a body or figure, especially a circle or sphere.

Thickness

The dimension from one surface of an object to the opposite surface, important in determining material properties and suitability for particular applications.

Flatness Tolerance

A specification that defines the permissible amount of deviation from a perfectly flat surface.