According to the Modigliani and Miller capital structure theory, in a world with interest deductibility but no costs to financial distress,
A) there is no optimal capital structure.
B) the optimal capital structure is 99.99 percent debt.
C) there is an optimal capital structure around 50 percent.

Question

Quizplus · Accepted Answer

In a world with interest deductibility and no costs to financial distress, the Modigliani and Miller theory suggests that firms should use as much debt as possible to maximize the tax shield benefits, leading to an optimal capital structure of nearly 100% debt.

According to the Modigliani and Miller Capital Structure Theory, in a World