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The Moldigani-Miller theory with taxes implies that firms should issue maximum debt. In practice, this is not true because: I) Debt is more risky than
The Moldigani-Miller theory with taxes implies that firms should issue maximum debt. In practice, this is not true because: I) Debt is more risky than equity II) Bankruptcy and its attendant costs is a disadvantage to debt III) The payment of personal taxes may offset the tax benefit of debt a) I only b)II only c) III only d) I II and III e) II and III only f) I and II only Moldigani -Miller Proposition I with corporate taxes states that: I) Capital structure can affect firm value by an amount that is equal to the present value of the interest tax shield II) By raising the debt-to-equity ratio, the firm can lower its taxes and thereby increase its total value III) Firm value is maximized at an all debt capital structure a) III only b) II only c) II and III only d) I only e) I and III only f) I II and II In Miller's model, when Personal tax rate on income from bonds is equal to the personal tax rate on income from stocks: a) Then there is no tax advantage of debt b) Relative advantage of debt depends only on the personal tax rate on interest income c) Relative advantage of debt depends only on the personal tax rate on income from equity d) Relative advantage of debt depends both on the personal tax rate on income from equity and the personal tax rate on income from interest e)Relative advantage of debt depends only on the corporate tax rate
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