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ETHAN JIMENEZ
on Dec 01, 2024

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According to the MM model of capital structure, the present value of the tax shield is offset by potential ____, resulting in an optimal capital structure.

A) bankruptcy costs
B) interest expense
C) operating costs
D) a and b

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income.

Bankruptcy Costs

Expenses and financial losses associated with undergoing bankruptcy, including legal fees, asset liquidation costs, and potential loss of business.

Optimal Capital Structure

The best mix of debt, equity, and other financial instruments that maximizes a company's market value while minimizing its cost of capital.

  • Acquire insight into the influence of the Modigliani and Miller (MM) model on capital structure theory.
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Aditya SagarDec 05, 2024
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