Question 5 (10 points) Listen Kennesaw Corp. applies a capital structure whereby the debt financing is increased up to the point where the marginal increase in the cost of financial distress is equal to the marginal increase in benefit from the interest rate tax shield. This strategy follows which one of the proposition/theory? 1) The static theory of capital structure 2) The pecking order theory 3) M&M Proposition ! 4) M&M Proposition 11 Question 6 (10 points) Listen Which of following are correct? 1- M&M Proposition I with taxes, the value of a firm increases as the firm's deb increases because of the interest tax shield II- M&M Proposition Il with taxes, the cost of equity increases as the debt-equity ratio of a firm increases III- M&M Proposition II with taxes has the same general implications as M&M Proposition Il without taxes, IV- M&M Proposition I with taxes, concludes that the capital structure decision is irrelevant to the value of a firm 1) I and Ill only 2) 1, II and Ill only 3) 11, 1lt and IV only 4) all of the above