Which of the following is not an assumption made by Modigliani and Miller in relation to the independence hypothesis concerning capital structure? a. No taxes b. There are no bankruptcy costs c. Equal borrowing rates for individual and businesses d. There is imperfect information e. All of the above are assumptions made by Modigliani and Miller under the independence hypothesis

Which of the following is not an assumption made by Modigliani and Miller in relation to the independence hypothesis concerning capital structure? a. No taxes b. There are no bankruptcy costs c. Equal borrowing rates for individual and businesses d. There is imperfect information e. All of the above are assumptions made by Modigliani and Miller under the independence hypothesis

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 2QTD

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Under Modigliani and Miller's assumption of perfect capital markets, which of the following is NOT CORRECT? A) The proper WACC equation under perfect capital markets is the "pre-tax" WACC B) Taxes are irrelevant C) Reducing the debt ratio can cause the cost of debt and the cost of equity to decline, even as the WACC stays the same. D) The WACC does not change as the weights of debt and equity change E) Bankruptcy costs reduce the amount bondholders receive when bankruptcy occurs
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