Your co-worker states, “There is no benefit to issuing debt.” Assuming the Modigliani and Miller assumptions...
Your co-worker states, “There is no benefit to issuing debt.” Assuming the Modigliani and Miller assumptions are true, is your co-worker’s claim:
| True, because firm value is unaffected by debt. |
| True, because debt might lead to bankruptcy. |
| False, because debt increases the return to equity. |
| False, because holding debt provides interest tax shields |
Homework Answers
The answer is True, because the firm value is unaffected by debt
One of the assumptions of the Modigliani and MIller is that there are no taxes.
When there are no taxes, there is no interest tax shield, so there is no benefit to issuing debt.
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Your co-worker states, “There is no benefit to issuing debt.”
Assuming the Modigliani and Miller assumptions...
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Hi, I am requesting your help. Some of those that I am not sure if I...
Hi,
I am requesting your help. Some of those that I am not sure if I
am right?
Thank you,
Michelle
________________________________
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8. More on capital structure theory The Modigliani and Miller theories are based on several unrealistic assumptions about debt financing. In reality, there are costs, taxes, and other factors associated with debt financing. These costs or effects have led to several theories that explain the impact of these factors on the capital structure of a firm. Based on your understanding of the trade-off theory, what kind of firms are likely to use more leverage? Firms with a higher proportion of...
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Respecfully--Please answer all if you are willing to help. This is
over MM propositions anf optimal capital structure theories
QUESTION 1 With perfect capital markets, because different choices of capital structure offer a benefit to investors, the capital structure affects the value of a firm. True False QUESTION 2 Under the assumptions of Modigliani and Miller, a firm's value does not depend on the fraction of its financing that it raises from debt holders vs. equity holders. True False QUESTION...
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Hi,
I am requesting your help. Some of those that I am not sure if I
am right?
Thank you,
Michelle
________________________________
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