Based on Miller and Modigliani (MM), when the only restrictive assumption of no corporate taxes is loosened (but we still assume that investors do not pay personal income taxes), then the optimal capital structure is ___________.

Group of answer choices

100% debt due to the recognition of the (corporate) tax shield

100% equity due to the fact that any financial leverage increases the WACC

50% debt and 50% equity for all firms since they balance costs and benefits of debt

Unimportant because the value of the firm is not affected by capital structure