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Question

Assume that there is corporate tax, but no other frictions. Based

on the propositions of Modigliani and Miller, which statement is the least accurate?


a.The weighted cost of capital decreases as the leverage ratio increases.
b.The cost of debt increases as the leverage ratio increases.
c.The optimal structure is 100% debt.
d.The cost of equity increases as the leverage ratio increases.
e.Firm value increases as the firm takes on more debts.

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Subject: Business, Finance
Assume that there is corporate tax, but no other frictions. Based on the propositions of Modigliani and Miller, which statement is the least accurate?...
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