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6. Please kindly select the True/False expressions for the following choices: (20 pts.) i. ii. If the stock is worthless, the call is worthless. Discounting
6. Please kindly select the True/False expressions for the following choices: (20 pts.) i. ii. If the stock is worthless, the call is worthless. Discounting the free cash flows (DCF) at the after tax WACC gives the Equity Value (EV) of the company (debt plus equity). Factors influence the choice of corporate financial structure are corporate and personal taxes, costs of bankruptcy and financial distress, asymmetric information, and agency costs. Capital expenditures and investments in working capital do not appear as expenses on the income statement, but they increase FCF. According to first proposition of MM, the weighted average cost of capital (WACC) will remain constant and unchanged. This shows that there is no ideal capital structure model and so it doesn't matter if a company uses huge debt or no debt
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