Which of the Following Is True of the Modigliani-Miller Theorem

question 10

Multiple Choice

Which of the following is true of the Modigliani-Miller theorem in case of costless bankruptcy?

• A)The loss to the old debt holders would be offset by a gain to the equity holders,leaving the total value of the firm unaltered by this type of capital structure change.
• B)If a firm's existing debt holders have a senior claim in the event of bankruptcy,a new debt issue can increase the value of existing debt.
• C)The sum of all future cash flows distributed to the firm's debt and equity investors is unaffected by capital structure.
• D)If a firm's existing debt holders have a junior claim in the event of bankruptcy,a new debt issue can increase the value of existing equity.

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Definitions:

Quantity Demanded

The aggregate quantity of a product or service that buyers are prepared and capable of buying at a certain price.

Quantity Supplied

The quantity of a product that sellers are prepared and capable of offering for sale at a certain price during a defined timeframe.

Excess Demand

A situation where the quantity demanded of a good or service exceeds the quantity supplied at the current price, leading to upward pressure on prices.

Good X

A term used to represent a hypothetical or specific good in economic models and discussions.