Quiz Ch 13 – T/F Modigliani and Miller’s Influence on Capital Structure Models

Fundamentals of Financial Management, Concise

Brigham and Houston

09th Edition

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True or false: Modigliani and Miller (MM) assumed a bankruptcy-free setting. This led to the "trade-off" model, where debt initially raises value due to tax shelter, but more debt later increases bankruptcy costs, surpassing tax benefits. The trade-off theory suggests an optimal capital structure.

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