1. government often step in to protect large companies that get into financial trouble and bail them out. if this is an acceptecd practice, what effect would you expect it to have on the debt ratios of firms? why? 2. the Miller-Modigliani theorem proposes that debt is irrelevant. under what conditions is this ture? if debt is irrelevant, what is the effect of changing the debt ratio on the cost of capital? 3. based upon the financing heirarchy described in this chapter, what types of sercurities would you expect financially strong firms to issue? what about financially weak firms? why?

4. in general, private firms tend to take on much less debt than publicly traded firms. based upon the discussion in this chapter, how would you expain this phenomenon? in general, private firms tend to take on much less debt than publicly traded firms. based upon the discussion in this chapter, how would you expain this phenomenon?