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Which of the following statements concerning capital structure theory is false? Under MM with corporate taxes, the levered cost of equity increases with leverage, and
Which of the following statements concerning capital structure theory is false? Under MM with corporate taxes, the levered cost of equity increases with leverage, and this increase is just sufficient to offset the tax benefits of debt financing. Under MM with corporate taxes, the value of the levered firm exceeds the value of the unlevered firm by the product of the tax rate times the market value dollar amount of debt. Under MM with zero taxes, financial leverage has no effect on firm value. Under MM with corporate taxes, the effect of business risk is automatically incorporated because the levered cost of equity is a function of the unlevered cost of equity
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