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Assume there are no corporate or personal taxes. According to M&M Proposition: a. I, the total value of the firm depends on how cash flows
Assume there are no corporate or personal taxes. According to M&M Proposition:
a. I, the total value of the firm depends on how cash flows are divided up between stockholders | ||
and bondholders. | ||
b. I, a firm's capital structure is relevant | ||
c. II, the cost of equity rises as the firm increases its use of debt financing | ||
d. II, the cost of equity depends on the firm's business risk but not its financial risk | ||
e. I and II, as debt increases, the increase in the cost of equity is more than offset by the lower | ||
cost of debt and the WACC falls |
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