QUESTION 21Consider the setting of Modigliani and Miller, with corporate taxes. Suppose the corporate tax rate is 30%. In this setting, how much would the value of a firm change if it increases leverage from $30 to $50? An otherwise identical unlevered firm is worth $100.A.Firm value would increase by 15%.B.Firm value would not change at all.C.Firm value would increase by 5.5%.D.Firm value would increase by 8.5%.

7.Which of the following statements best describes Modigliani and Miller (MM) Proposition II for a firm that pays corporate taxes? a.The cost of equity increases linearly as the debt-to-equity ratio increases, unaffected by corporate taxes. b.The value of a leveraged firm is equal to the value of an unleveraged firm plus the tax shield benefits of debt. c.The capital structure is irrelevant to the firm's value, even when corporate taxes are considered. d.The firm's cost of capital increases as the debt-to-equity ratio increases, due to the tax deductibility of interest payments. e.Corporate taxes decrease the overall cost of debt, making equity financing more attractive

Modigliani-Miller propositions I and II support which of the following conclusion(s)?Select one or more alternatives:The total value of a firm is irrelevant to its capital structure if tax is considered.The cost of debt is usually lower than the cost of equity because equity holders need to pay taxes.Equity beta increases with debt financing level, but asset beta does not change regardless of capital structure.The cost of equity of a levered firm increases because there is additional compensation for insolvency risk arising from debt.In a perfect capital market, the weighted average cost of capital decreases because interest is tax deductible.

The Miller and Modigliani capital structure theorem implies that without taxes:You Answered  homemade leverage affects the value of the firm to the debtholders   firm valuation is dependent upon shareholders’ aversion to homemade leverage Correct Answer  any capital structure is just as valuable as any other capital structure for a firm   the value of a levered firm is greater than that of an unlevered firm   the value of a firm is directly related to the use of debt

The Modigliani-Miller (MM) model states that, under certain assumptions, the value of a firm is:a.Dependent on its capital structureb.Independent of its capital structurec.Directly proportional to its earnings per share (EPS)d.Inversely proportional to its weighted average cost of capital (WACC)

An unlevered firm has a value of $30 million. An identical firm has debt of $2 million with a 7 percent annual coupon. The tax rate is 40 percent. What is the value of the levered firm?Multiple choice question.$30 million$30.8 million$32 million$29.2 million