7. Which of the following is NOT an assumption of the Miller & Modigliani theorem? A. Investors can borrow and lend at the same rate that corporations can B. Capital markets are perfect C. Information asymmetries exist between management and stockholders D. No taxes E. All of the above are assumptions of the Miller & Modigliani theorem 8. Tetroid Corporation has $51 million worth of debt. The company pays a corporate tax rate of 17%. There are no personal taxes on debt or equity income. What is the present value of Tetroid's interest tax shield? A. $3 million B. $300 million C. $8.67 million D. $17 million E. None of the above i 9. Sponsyllo Corp has debt of $15 million that pays an interest rate of 8%, equity of $5 million, and the required return on assets is 12%. The company does not pay any taxes. What is Sponsyllo's cost of equity? A. 20% B. 12% C. 14% D. 8 2/3% E. None of the above 10. If a Corporation must pay income taxes, the Miller & Modigliani model predicts that A. Capital structure is irrelevant B. Capital structure is important: Tax advantage for debt over equity C. Capital structure is important: Tax advantage for preferred stock D. Both A and C E. None of the above 11. According to Miller, if personal taxes on income from stocks increase, holding all else equal, then A. Gains from leverage will increase B. Gains from leverage will decrease C. The effects of changes in leverage are uncertain D. The personal tax rates on interest income are irrelevant E. None of the above 12. According to the textbook, companies that have large amounts of nondebt tax shields A. Should not use much debt financing compared with other companies B. Should use more debt financing than other companies C. Should use debt financing with higher interest rates D. Both B and C E. All of the above 13. Why is debt financing referred to as 'leverage'? A. It pulls management's levers B. It levels all firms to a common basis C. It magnifies the return on equity of a firm D. Both A and B E. None of the above