1. (a) Outline the Modigliani and Miller valuation propositions. Specify the assumptions on which their propositions are based.

(b) Modigliani and Millers Proposition 1 and 2 are contradictory. Shareholders cannot be indifferent to the use of debt when it increases the expected rate of return on their investment. Comment on whether you agree or disagree with this statement, and provide reasoning.