The Concept of Tax Sufficiency

question 112

Multiple Choice

The concept of tax sufficiency:

• A)suggests the need for tax forecasting.
• B)suggests that a government should estimate how taxpayers will respond to changes in the current tax structure.
• C)suggests that a government should consider the income and substitution effects when changing tax rates.
• D)All of the choices are correct.
• E)None of the choices are correct.

---

Definitions:

MM

Often refers to Modigliani-Miller propositions, theoretical principles in corporate finance regarding capital structure irrelevance in perfect markets.

Debt Financing

Debt financing involves raising capital through borrowing money that must be repaid over time, typically with interest, from external sources like banks or through issuing bonds.

Bankruptcy Costs

Expenses associated with the process of declaring and handling bankruptcy, including legal fees, administrative fees, and potential losses to creditors.

Miller and Modigliani

Refers to the theorem proposed by Franco Modigliani and Merton Miller, indicating that under certain market conditions, the valuation of a company is unaffected by its capital structure.