The Original Form of the Modigliani and Miller Capital Structure

question 82

Multiple Choice

The original form of the Modigliani and Miller Capital Structure Theorem

• A) ignores the effect of taxes.
• B) ignores the relationship between firm value and cost of capital.
• C) ignores transaction costs.
• D) both A and C are true.

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Definitions:

Availability Heuristic

This is a mental shortcut that relies on immediate examples that come to a person's mind when evaluating a specific topic, concept, method, or decision.

Representativeness Bias

A cognitive bias where individuals judge the probability of an event by how much it resembles their existing stereotypes or expectations, rather than based on actual statistical evidence.

Self-fulfilling Prophecy

A belief or expectation that an individual holds that comes true because he or she acts in ways that support or lead to its fulfilment.

Discrimination

The unjust or prejudicial treatment of different categories of people, especially on the grounds of race, age, sex, or disability.