QUESTION 2 the firm, then the firm capital structure is irrelevant because you can use "homemade" leverage. Assuming there are no taxes and you can borrow and lend at the same rate True False QUESTION 3 By increasing debt in your company's capital structure, you are increasing your tax shield, but also increasing your financial distress costs. True False QUESTION 4 From what we know about the Modigliani-Miller propositions, if we decrease the corporate tax rate, then firms should use more debt relative to equity financing. True False QUESTION 5 The WACC is the overall return the firm must earn on its existing assets to maintain the value of its stock. True False QUESTION 6 The WACC is the required return on the firm's overall assets. True False QUESTION 7 The optimal capital structure refers to: having more preferred stock financing relative to common stock financing. the idea that there is a specific weighting of debt and equity financing which results in the lowest cost of capital. issuing the optimal amount of convertible bonds. paying the highest stock dividend allowable