Financial theorists Modigilani and Miller did not breed English Sheepdogs, but they did make a great contribution to our understanding of capital structure by

• A.identifying the minimum size, in terms of annual sales revenues, of a company for which long-term debt should be the predominant form of finacing.
• B.identifying the maxium size, in terms of assets, of a company for which stockholders' equity should be the predominant form of finacing.
• C.proving that capital structure is always irrelevant under all possible market conditions.
• D.describing a world where capital structure would be irrelevant, thereby identifying conditions that cause capital structure to matter.
• E.(both answers a and b above are correct)

practice problem for upcoming exam