M & M Proposition I with tax supports the theory that:

M & M Proposition II is the proposition that:    A.  the capital structure of a firm has no effect on the firm's value. B.  the cost of equity depends on the return on debt, the debt-equity ratio, and the tax rate. C.  a firm's cost of equity is a linear function with a slope equal to (RA - RD). D.  the cost of equity is equivalent to the required rate of return on a firm's assets. E.  the size of the pie does not depend on how the pie is sliced. Refer to section 16.3

28.

The business risk of a firm:    A.  depends on the firm's level of unsystematic risk. B.  is inversely related to the required return on the firm's assets. C.  is dependent upon the relative weights of the debt and equity used to finance the firm. D.  has a positive relationship with the firm's cost of equity. E.  has no relationship with the required return on a firm's assets according to M & M Proposition II. Refer to section 16.3

29.

Which of the following statements related to financial risk are correct? I. Financial risk is the risk associated with the use of debt financing. II. As financial risk increases so too does the cost of equity. III. Financial risk is wholly dependent upon the financial policy of a firm. IV. Financial risk is the risk that is inherent in a firm's operations.    A.  I and III only B.  II and IV only C.  II and III only D.  I, II, and III only E.  I, II, III, and IV Refer to section 16.3

30.

M & M Proposition I with tax supports the theory that:    A.  a firm's weighted average cost of capital decreases as the firm's debt-equity ratio increases. B.  the value of a firm is inversely related to the amount of leverage used by the firm. C.  the value of an unlevered firm is equal to the value of a levered firm plus the value of the interest tax shield. D.  a firm's cost of capital is the same regardless of the mix of debt and equity used by the firm. E.  a firm's cost of equity increases as the debt-equity ratio of the firm decreases. Refer to section 16.4

31.

M & M Proposition I with taxes is based on the concept that:    A.  the optimal capital structure is the one that is totally financed with equity. B.  the capital structure of a firm does not matter because investors can use homemade leverage. C.  a firm's WACC is unaffected by a change in the firm's capital structure. D.  the value of a firm increases as the firm's debt increases because of the interest tax shield. E.  the cost of equity increases as the debt-equity ratio of a firm increases. Refer to section 16.4