True or False? Explain briefly.

a If firms did not have limited liability, the risk of their assets would be increased.

b If firms did not have limited liability, the risk of their equity would be increased.

c Borrowing does not affect the return on equity if the return on the firms assets is equal to the interest rate.

d As long as the firm is certain that the return on assets will be higher than the interest rate, an issue of debt makes the shareholders better off.

eIn a perfect capital market, minimizing the weighted average cost of capital is equivalent to maximizing the firm's value.

f MMs proposition II assumes increase borrowing does not affect the interest rate on the firms debt.

g Shareholders demand and deserve higher expected rates of return than bondholders do. Therefore, debt is the cheaper capital source. We can reduce the WACC by borrowing more.