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15. If we introduce positive tax rate to the M&M world, which statement below is incorrect? a. The cost of equity is above the after-tax

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15. If we introduce positive tax rate to the M&M world, which statement below is incorrect? a. The cost of equity is above the after-tax cost of debt. b. As leverage increases, the required rate of return for equity increases. c. As leverage increases, WACC remains the same. d. As leverage increases, the after-tax cost of debt remains the same. e. As leverage increases, the value of the firm increases. 16. Suppose we introduce bankruptcy to the M&M world, which statement below is incorrect? a. As leverage increases, the probability of bankruptcy increases. b. As leverage increases, WACC increases. C. As leverage increases, the value of the firm increases. d. As leverage increases, the required rate of return for equity increases. 17. The tradeoff theory of capital structure states that: a. The capital structure of a firm does not matter. b. The optimal capital structure is the one that is totally financed with equity. c. WACC increases as the firm's debt-equity ratio increases. d. The cost of equity must decrease as the debt-equity ratio of a firm increases. e. The value of a firm increases with leverage if the tax shield effect is stronger than the bankruptcy effect. 18. How many of the statements about corporate finance and capitalism are correct? i. A reduction of central bank policy rate increases the number of possible NPV projects, therefore stimulating the economy. ii. Higher entry barriers into an industry may increase existing firms' market power and reduced welfare. iii. Efficient capital allocation is an essential part of capitalism. iv. Proper corporate governance can reduce the conflict of interest between corporate managers and shareholders, therefore improving the efficiency of the system. Your choice: a. zero; b. one; c. two; d. three; e. four

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