Question
Please mark the only INCORRECT statement about the CAPITAL STRUCTURE of the firm in the context of a perfect world without taxes as used in
Please mark the only INCORRECT statement about the CAPITAL STRUCTURE of the firm in the context of a perfect world without taxes as used in Modigliani Miller
| a. | Leverage is irrelevant when determining the risk of equity for the firm | |
| b. | Without taxes, the firm's average cost of capital (rwacc) with leverage is the same as for the unlevered firm | |
| c. | Without taxes, if a firm engages in a leverage recapitalization (borrows by issuing bonds and repurchases stocks with the full amount of the bond issue), then neither the Value of the firm V nor its stock price Ps should change after the transaction is complete | |
| d. | Levered equity can increase expected returns but at expense of higher volatility for stock prices |
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Fundamental Accounting Principles
Authors: Larson Kermit, Tilly Jensen
Volume I, 14th Canadian Edition
71051503, 978-1259066511, 1259066517, 978-0071051507
