1. Under the M&M world with perfect capital markets, the cost of equity is independent of its capital structure.

   True

   False

2. Under the M&M world with perfect capital markets, a firms value should rise with increased leverage because debt is cheaper than equity.

   True

   False

3. Under the M&M world with perfect capital markets, a firms average cost of capital (i.e. pre-tax WACC) falls for increases in debt as long as the firm avoids truly excessive leverage.

   True

   False