The Modigliani and Miller Hypothesis Does Not Work in the "Real

Multiple Choice

The Modigliani and Miller hypothesis does not work in the "real world" because

A) interest expense is tax deductible, providing an advantage to debt financing.
B) higher levels of debt increase the likelihood of bankruptcy, and bankruptcy has real costs for any corporation.
C) both A and B.
D) dividend payments are fixed and tax deductible for the corporation.