1. Under the assumptions of no taxes, no transaction costs, and that the individuals and corporations borrow at the same rate, which affirmation is correct?

a.

The expected rate of return on equity Rs is positively correlated related to the firms leverage.

b.

None of the other options is correct.

c.

The expected rate of return on equity Rs is not affected by the firms leverage.

d.

The expected rate of return on equity Rs is negatively correlated to the firms leverage.

2. Which capital structure is going to be benefited more than the other from the presence of taxes?

a.

The more equity-based capital structure

b.

There are going to be benefited equally.

c.

The more debt-based capital structure

d.

None of the other of the options is correct.

3. Under the assumptions of taxes, no transaction costs, and that individuals and corporations borrow at the same rate, which should be the objective of a manager?

a.

To maximize the share price

b.

To maximize the value of the firm

c.

None of the other options is correct.

d.

To maximize the value of the firm which is the same as to maximize the share price.