Consider the MM tradeoff theory of capital structure, including taxes and bankruptcy costs. Assume you sketched an approximate graph with firm value on the vertical axis and the D/E ratio on the horizontal axis.

The graph would look like:

a) a horizontal line, reflecting the same value across all debt levels.

b) a U-shaped curve, reflecting higher firm values with either no debt or extreme debt, and lower firm value at moderate debt levels.

c) an upside down U-shaped curve, reflecting higher firm values at moderate debt levels, and lower firm values with either no debt or extreme debt levels.

d) A strictly upward sloping graph, reflecting greater value with more debt.

e) A strictly downward sloping graph, reflecting lower value with more debt.