Consider the Pie Models of Corporate Structure

Multiple Choice

Consider the pie models of corporate structure.What is the difference between the all-equity pie and the levered pie for a firm in the presence of taxes?

A) The size of the levered pie is smaller than the all-equity pie.
B) Taxes eat a slice of the levered pie but pass by the all-equity pie.
C) Both pies are the same size and are sliced identically.
D) Taxes eat a slice of both pies but take a larger slice of the all-equity pie.
E) The all-equity pie is smaller in size than the levered pie.