Part A

Part B

Which of the following statements most accurately describes the practical risk/return tradeoff of adding debt to a company that is originally unlevered? Adding as much leverage as a company can qualify for is always a good idea because tax savings on interest will always override other concerns. Some amount of leverage will often increase the dollars available for investors, but risk is now introduced which may prove catastrophic if financial projections are incorrect. O Government tax policy decision have no impact on whether leverage should be utilized by corporations seeking ideal policy choices. O Adding leverage to a company is always a proposition unworthy of the additional risk that it entails. The main takeaway of Miller and Modigliani's theory of capital structure is that... O it is typically advisable to take on as much equity financing as possible because shareholders will then face little constraint from the obligations that generally come with bond contracts. O how much debt vs. equity a company uses to finance is irrelevant if bankruptcy costs, taxes, and other real-world considerations are ignored. o international currency exchange rates will play the most important role in determining optimal capital structure policy. it is typically advisable to take on as much debt as possible for corporations because household tax rates are less volatile than corporate tax rates