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The proposition that a firm borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs is called: A. the static theory of capital structure.
B. M & M Proposition I.
C. M & M Proposition II.
D. the capital asset pricing model.
E. the open markets theorem.
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Briefly describe the Modigliani and Miller Proposition I and discuss the important conditions that are required to prove it to be true. Are they realistic?
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A project is expected to create operating cash flows of $22,500 a year for three years. The initial cost of the fixed assets is $50,000. These assets will be worthless at the end of the project. An additional $3,000 of net working capital will be req..
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