When MM theory recognizes taxes and bankruptcy costs, firm value:

A) is unaffected by financial leverage.
B) steadily increases with financial leverage.
C) steadily decreases with financial leverage.
D) initially increases but then decreases as financial leverage rises.

Financial Leverage

The use of borrowed money (debt) to amplify the potential returns from an investment or project.

Bankruptcy Costs

Expenses and fees associated with the process of declaring bankruptcy, including legal fees, filing fees, and other related costs.

MM Theory

Modigliani-Miller Theorem; a financial theory stating that the market value of a company is independent of its capital structure and dividend policy under certain conditions.