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In 1958 Franco Modigliani and Merton Miller (MM) published a set of research papers that revolutionized the theory of a corporation's capital structure In their

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In 1958 Franco Modigliani and Merton Miller (MM) published a set of research papers that revolutionized the theory of a corporation's capital structure In their first research paper, MM proposed a set of assumptions that, on the surface, may seem unrealistic, but these assumptions and MMis aigebraic approach provided the first significant attempt to study capltal structure theory in a scientific fashion. The original assumptions that were used in MMs: first study were changed by MM and other researchers as the theory of capital structure evolved. Which of the following statements are assumptions that MM used in their initial model and research paper? Check all that apply. There are no taxes, either personal or corporote. Stocks and bonds are traded in perfect markets where there are no brokerage costs and all investora can borrow at the same rate. All cash flows are perpetuliec, so EBIT will remain constant. The cost of debt increases with the level of debt. Consider the following statement about a firm's capital structure: The value of the firm is independent of its leverage. Is the preceding statement consistent with the conclusions of Modigliani and Miller's capital structure theory? Yes No

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