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8. Assumptions of the Modigliani and Miller Modern capital structure theory, constructed by Modigliani and Miller, began in 1958 and provided a justification fora corporation's use of more and more financial leverage under certain assumptions. CEOs and 0s were encouraged to accept M&M's theory and put it into practice, especially when the company's spending is high and the risk of servicing its debt is low. As capital markets have evolved, it is critical to understand the context and assumptions under which this model was created Review the situation and answer the questions that follow: An analyst has graphed the relationship between the expected return on a firm's capital and its debt-equity (B/E) ratio. Her graph follows RATES OF RETURN Percent 20 16 14 2 10 Equity Assels Deb