Question
The basic point being made by Modigliani and Miller is that in the absence of taxes and transaction costs 1. the optimal capital structure balances
The basic point being made by Modigliani and Miller is that in the absence of taxes and transaction costs
1. the optimal capital structure balances the firms tax-shield and financial distress costs.
2. a firm cannot change the total value of its outstanding securities by changing its capital structure
3. greater debt leads to a lower weighted-average cost of capital and greater firm value.
4. we must account for the timing and risk of cash flows in order to properly value the firm.
5. when new projects are added to the firm, the firms value is the sum of its old value plus the value of the new project.
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