Assume There Are No Corporate or Personal Taxes

Multiple Choice

Assume there are no corporate or personal taxes. According to M&M Proposition:

A) I, the total value of the firm depends on how cash flows are divided up between stockholders and bondholders.
B) I, a firm's capital structure is relevant.
C) II, the cost of equity rises as the firm increases its use of debt financing.
D) II, the cost of equity depends on the firm's business risk but not its financial risk.
E) I and II, as debt increases, the increase in the cost of equity is more than offset by the lower cost of debt and the WACC falls.