According to MM, if individuals cannot obtain the same borrowing terms as firms, then:
A) capital structure may be relevant.
B) capital structure may be irrelevant.
C) individuals should not invest in levered firms.
D)firms should increase their payments to individuals.

Question

Quizplus · Accepted Answer

If individuals cannot obtain the same borrowing terms as firms, it implies that there is a difference in the cost of capital for individuals and firms. This suggests that capital structure may be relevant, as firms can take advantage of debt tax shields and lower their cost of capital compared to individuals. Therefore, the answer is A.

According to MM, If Individuals Cannot Obtain the Same Borrowing