As seen on an income statement: A interest is deducted from income and increases the total taxes incurred. B. depreciation is shown as an expense but does not affect the taxes payable. C. depreciation reduces both the pretax income and the net income. D. dividends reduce net income. The Capital Asset Pricing Model states that the expected return on a security depends on which of the following? (Circle your choice(s). You may choose more than one.) I. pure time value of money as measured by the risk free rate II. amount of systematic risk as measured by standard deviation III. the reward for bearing systematic risk as measured by the market risk premium IV. the amount of market risk as measured by beta Which of the following statements related to financial risk are correct? I. Financial risk is the risk associated with the use of debt financing. II. As financial risk increases so too does the cost of equity. III. Financial risk is wholly dependent upon the financial policy of a firm. IV. Financial risk is the risk that is inherent in a firm's operations. A-I and III only. B. II and IV only C. II and III only. D. I, II, and III only. E. I, II, III, and IV The MM theory with taxes and bankruptcy costs implies which of the following: A. There is one optimal capital structure that is easily identifiable. B. There is one optimal capital structure that balances the tax benefit against financial distress costs. C Capital structure does not affect firm value because it does not affect WACC. As debt Is increased in the capital structure the cost of equity will decrease which will cause the