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:

Dominant Firms

Firms that have a major share of the market sales in a particular industry, giving them the power to influence the market's total output and price levels.

New Products

Items that have been recently introduced to the market, offering innovative solutions or improvements over existing products.

Interest-Rate Cost-Of-Funds

Represents the interest rate that banks or other financial institutions pay for the funds that they use in their operations, including deposits and loans from other institutions.

Perfectly Elastic

A term used in economics to describe a situation where the quantity demanded or supplied changes infinitely in response to any change in price.