The Major Contribution of the Miller Model Is That It

question 48

Multiple Choice

The major contribution of the Miller model is that it demonstrates that

• A) personal taxes decrease the value of using corporate debt.
• B) financial distress and agency costs reduce the value of using corporate debt.
• C) equity costs increase with financial leverage.
• D) debt costs increase with financial leverage.
• E) personal taxes increase the value of using corporate debt.

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Definitions:

Portfolio

A portfolio represents a collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs.

Promissory Note

A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.

Compounded Semiannually

Interest calculation method where interest is added to the principal on a semiannual basis, leading to interest on interest in the second half of the year.

Quarterly Compounded

Interest calculation method where the accrued interest is added to the principal balance four times a year, allowing interest to be earned on interest.