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Suppose all of the M&M assumptions hold and there are no corporate taxes. Two of your colleagues at Dell get into a discussion about capital
Suppose all of the M&M assumptions hold and there are no corporate taxes. Two of your colleagues at Dell get into a discussion about capital structure. They discuss what will happen to the cost of equity if Dell increases its leverage by borrowing more debt. Colleague A says that the cost of equity will not change because the value of the firm does not change. Colleague B says that more debt will increase the cost of equity. Who is right? Colleague A is right Colleague B is right Both are right Both are wrong
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