Question $1(1$ point$)$

The early theories of capital structure, M&M I, and M&M II$,$ use very restrictive assumptions. The idea

behind this approach is to first understand the relationship between leverage levels and firm value with the

assumptions in place and then see the impact of removing each assumption one by one.

True

False

Question $2(1$ point$)$

The restrictive assumptions of M&M I include the assumption that EBIT is unaffected by the level of debt in

the capital structure.

True

False

Question $3(1$ point$)$

The restrictive assumptions of M&M I include the assumption that as firm's take on more debt the cost of

debt increases

True

False

Question $4(1$ point$)$

In M&M I, Miller and Modigliani prove that under some very restrictive assumptions, the value of a firm is

unaffected by the amount of debt in the capital structure.

True

False

Question $5(1$ point$)$

Under M&M $1,$ the WACC of an unlevered firm equals the WACC of the levered firm

for any level of leverage.

True

False