MM Proposition I with Tax Is Based on the Concept

question 59

Multiple Choice

MM Proposition I with tax is based on the concept that the:

• A)optimal capital structure is the one that is totally financed with equity.
• B)capital structure of the firm does not matter because investors can use homemade leverage.
• C)firm is worse off levered than unlevered.
• D)value of the firm increases as total debt increases because of the interest tax shield.
• E)cost of equity increases as the debt-equity ratio of a firm increases.

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Definitions:

Customer Confidence

The trust and belief that consumers have in a company's products or services, influencing their willingness to purchase.

Rationalizer

An individual who justifies actions or decisions with logical, albeit sometimes flawed, reasoning to accommodate personal biases or avoid cognitive dissonance.

Unethical Behaviour

Actions that are considered morally wrong according to the widely accepted standards of a community or society.

Ambiguous Situations

Circumstances or scenarios that lack clarity or have multiple interpretations.