Which firm should always select the capital structure

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problem 1: A firm should always select the capital structure which:

a) produces the highest cost of capital.

b) minimizes taxes.

c) maximizes current dividends.

d) maximizes the value of the firm.

problem 2: MM Proposition I with no tax supports the argument that:

a) the cost of equity rises as leverage rises.

b) business risk determines the return on assets.

c) a firm should borrow money to the point where the tax benefit from debt is equal to the cost of the increased probability of financial distress.

d) it is completely irrelevant how a firm arranges its finances.

Reference no: EM132802578

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