Solution-Demonstrate the cost of capital for a firm

Demonstrate the cost of capital for a firm

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Reference no: EM132690611

Problem 1: Cost of capital for a firm -- when we allow for taxes, bankruptcy, and agency cost

a) remains constant with increasing levels of financial leverage.

b) first declines and then ultimately rises with increasing levels of financial leverage.

c) increases with increasing levels of financial leverage.

d) decreases with increasing levels of financial leverage.

Problem 2: According to the M&M Theory

a) if there are no taxes, firms are indifferent concerning the method of financing.

b) taking taxes into consideration, firms should maximize the use of debt.

c) taking taxes into consideration, firms should maximize the use of equity.

d) both a and b

e) both a and c

Reference no: EM132690611

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Demonstrate the cost of capital for a firm

Reference no: EM132690611

Reference no: EM132690611

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