7. Which of the following are the assumptions used in deriving the Capital Asset Pricing Model (CAPM)? i. Investors have the same expectations regarding the volatilities, correlation, and expected returns of securities. ii. Investors have the same risk preferences. iii. Investors hold only efficient portfolios of traded securities, that is portfolios that yield the maximum expected return for the given level of volatility. iv. Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate. v. Companies have no bankruptcy risk. A) i, ii, and iii B) i, iii, and iv C) i. iii, and v D) ii, iv, and v 8. Which of the following statements is FALSE? A) Leverage decreases the risk of the equity of a firm. B) With perfect capital markets (and no tax), the combined cash flows of debt and equity must be equal to the cash flows of the project. C) Franco Modigliani and Merton Miller argued that with perfect capital markets and no tax, the total value of a firm should not depend on its capital structure. D) It is inappropriate to discount the cash flows of levered equity at the same discount rate that we use for unlevered equity. 9. According to Modigliani-Miller I, which of the following statements is FALSE? A) With no debt, the WACC is equal to the unlevered equity cost of capital. B) With perfect capital markets (and no tax), a firm's WACC is dependent on its capital structure. C) As a firm takes leverage with low cost of debt capital (and no tax), its equity cost of capital rises, but the net effect is that the firm's WACC is unchanged. D) With tax, taking leverage reduces a firm's WACC