Why is the value of the levered and unlevered firms are identical under Proposition I of M&M? Select one: a. Increases in leverage do not cause earnings per share to increase, so value does not increase O b. Earnings per share are diluted by the increased debt and are spread to debtholders. c. Earnings per share are increased but the taxes on the increased earnings keep the earnings to the levered and unlevered firms identical. d. The increased costs of bankruptcy due to the debt cause the firm values to be identical. e. The discount rate on earnings is greater for the levered firm versus the unlevered firm. When using Altman's Z for financial distress prediction, the equation allows us to: Select one: a. calculate a score that allows us to differentiate low default risk and high default risk firms. b. infer which firms with default risk have a high probability of emerging from bankruptcy. c. insure that we definitively know which firms have low versus high default risk. d. guarantee that firms with low default risk will not easily fall into financial distress e. do none of the above things. The firm's target capital structure should be consistent with which of the following statements? Select one: a. Maximize the earnings per share (EPS) b. Minimize the cost of debt (rd). c. Obtain the highest possible bond rating. d. Minimize the cost of equity (rs). e. Minimize the weighted average cost of capital (WACC). The return to equity holders in the levered firm under trade-off theory takes advantage of a tax shield. Which of the following is INCORRECT regarding trade-off theory? Select one: a. When the firm has very small amounts of debt, the bankruptcy costs of debt are immaterial ob. The value of the actual firm with debt exceeds the value of the firm with no leverage. c. Bankruptcy costs reduce the value of the levered firm. d. The value added by the tax shield equals the bankruptcy costs plus the actual firm value. O e. Firm value is maximized at a level where the firm has an optimal amount of debt and equity