1. From what you see on the graph, which of the following assumptions is consistent with the graph? a. The cost of equity will always remain higher than the cost of debt

b. Excessive financial leverage causes a decreaes in the firm's EBIT

c. The firm's debt has no default risk

d. The firm's debt is risk free

2. Based on the assumption that a firm operates in a tax-free world, modigliani and Miller made an important proposition about the value of a leveraed portfolio (VL) and an unlevered portfolio (Vu). Which of the following equations best represenrs the conclusion from the MM: No Tax Theory? a. Vu not equal VL b. Vu = SL - D c. VL = SL = D d. VL = SL + D Note: above are supposed to be equations, so it should be a large "S" and a smaller L when its talking about "SL"