_____________ implies that the ﬁrm should issue as much debt as possible.
A) M&M Proposition I with taxes.
B) M&M Proposition I without taxes.
C) The static theory of capital structure.
D) M&M Proposition II without taxes.
E) M&M Proposition II with taxes.

Question

Quizplus · Accepted Answer

M&M Proposition I with taxes suggests that the value of a firm increases with leverage due to the tax shield on debt, implying that a firm should issue as much debt as possible to maximize its value.

_____________ Implies That the ﬁRm Should Issue as Much Debt