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The Modigliani and Miller (MM) articles implicitly assumed thatbankruptcy did not exist. T

The Modigliani and Miller (MM) articles implicitly assumed thatbankruptcy did not exist. That led to the development of the"trade-off" model, where the firm's value first rises with the useof debt due to the tax shelter of debt, but later falls as moredebt is added because the potential costs of bankruptcy begin tomore than offset the tax shelter benefits. Under the trade-offtheory, an optimal capital structure exists.

True or False?

Dec 01 2019 View more View Less

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