The use of financial leverage the expected ROE, the probability of a large loss, and the risk borne by shareholders. consequently 2. Modigliani and Miller assumptions Aa Aa In 1958 Franco Modigliani and Merton Miller (M&M) published a set of financial papers that revolutionised the research of capital structure theory. M&M proposed a set of assumptions that may seem unrealistic, but the assumptions and their algebraic approach provided a basis for supporting capital structure theory in a scientific fashion. The original assumptions that were used in M&M's first proposal were changed by M&M and other researchers as capital structure theory evolved. Which of the following statements are assumptions that M&M made in their initial model? Check all that apply. Investors can borrow and lend at the same rate that corporations can. There are no taxes, either personal or corporate. The cost of debt increases with the level of debt Cash flows grow at an unpredictable rate. Consider the following statement about a company's capital structure: The company's weighted average cost of capital (WACC) is unaffected by its capital structure. Is the preceding statement consistent with the conclusions of Modigliani and Miller's capital structure theory? Yes No