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

question 27

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.

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Definitions:

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