Which One of the Following Statements Is the Core Principle

question 12

Multiple Choice

Which one of the following statements is the core principle of M&M Proposition I,without taxes?

• A)A firm's WACC is directly related to the firm's debt-equity ratio.
• B)Levered firms have greater value than unlevered firms.
• C)The interest tax shield increases the value of a firm.
• D)A firm's cost of equity is directly related to the firm's debt-equity ratio.
• E)The capital structure of a firm is totally irrelevant.

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, often derived from the company's profits.

Stockholders

Stockholders, also known as shareholders, are individuals or entities that own one or more shares of stock in a public or private corporation.

Repurchase

The act of buying back previously sold securities, commodities, or other financial assets by the original issuer or seller.

Market Price

The existing price point for buying or selling an asset or service in the marketplace.