Which One of the Following Is the Theory That a Firm

Multiple Choice

Which one of the following is the theory that a firm should borrow up to the point where the additional tax benefit from an extra dollar of debt equals the additional costs associated with financial distress from that additional debt?

A) M&M Proposition I, with taxes
B) M&M Proposition II, with taxes
C) M&M Proposition I, without taxes
D) Homemade leverage proposition
E) Static theory of capital structure