According to the Modigliani-Miller (MM) theory of capital structure in a perfect market, which of the following statements is false? A. Leverage increases the risk of equity and therefore leverage increases a firm's cost of equity Leverage does not affect a firm's weighted average cost of capital B. There is an optimal capital structure that can maximize firm value The total cash flow received by all of a firm's security holders is equal to the total cash flow generated by the firm's assets ABC Inc. is evaluating an investment project that lasts for three years. The project has the cost of capital of 15% and requires an initial investment of $2 million. There is a 40% chance that the project would be successful and would generate annual free cash flows of $3 million per year during the next three years. There is a 60% chance that the project would be less successful and would generate only $2 million per year during the next three years. However, ABC recognizes that if the project is successful, it could invest $3 million at the end of the second year to expand the project and receive a free cash flow of $6 million at the end of third year. ABC estimates that the net project value (NPV) of the project without the option to expand and the NPV of the project with the option to expand would be closest to: A. The NPV of the project without the option to expand is $2.57 million and the NPV of the project with the option to expand is $4.85 million B. The NPV of the project without the option to expand is $3.48 million and the NPV of the project with the option to expand is $4.15 million O The NPV of the project without the option to expand is $3.48 million and the NPV of the project with the option to expand is $4.85 million D. The NPV of the project without the option to expand is $2.57 million and the NPV of the project with the option to expand is $6.53 million The table below shows the information about stock beta and total volatility of four firms. Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%. Which firm has the highest cost of equity capital? Beta Volatility Eenie 0.45 2096 Meenie 0.75 Miney 1.05 3596 Moe 1.20 259 O A Meenie 1896 OB. Miney . OD. Eenie