7) The MM theory with taxes implies that firms should issue maximum debt. In practice, this is not true because: A. debt is more risky than equity. B. bankruptcy is a disadvantage to debt. C. firms will incur large agency costs of short term debt by issuing long term debt. D. Both A and B. E. Both B and C. I 8) Transvaal Ltd currently has debt outstanding with a market value of $1,140,000 and a cost of 9 per cent. The company has an EBIT of $ 102,600 that is expected to continue in perpetuity. Assume there are no taxes. a. What is the value of the company's equity? What is the debt-to-value ratio? b. What are the equity value and debt-to-value ratio if the company's growth rate is 3 per cent? a) The interest payments each year will be: Interest payment = 0.09( $1.140.000) = $ 102.600 This is exactly equal to the EBIT. so no cash is available for shareholders. Under this scenario the value of equity will be zero since shareholders will never receive a payment. Since the market value of the company's debt is $1.1 40.000. and there is no probability of is the larket value of debt. This implies the debt to