A firm that has no debt has a market value of equity of $100 million and a cost of equity of 11 percent. In the Miller-Modigliani world,

a. what happens to the value of the firm as the leverage (debt) is changed (assume no taxes, no bankrupty costs etc. i.e. perfect market assumptions hold)?

b. what happens to the cost of capital as the leverage is changed (assume no taxes, no bankrupty costs etc. i.e. perfect market assumptions hold)?

Select one:

a. a) no change b) no change

b. a) no change b) Increase

c. a) increase b) decrease

d. a) decrease b) no change