Which of the following statements is FALSE?A.Franco Modigliani and Merton Miller argued that with perfect capital markets, the total value of a firm should not depend on its capital structure.B.It is inappropriate to discount the cash flows of levered equity at the same discount rate that we use for unlevered equity.C.Leverage decreases the risk of the equity of a firm.D.Because the cash flows of the debt and equity sum to the cash flows of the project, by the Law of One Price the combined values of debt and equity must be equal to the cash flows of the project.

3. Which of the following statements is FALSE?Video: 5.F. P54-72 (Capital structure with other market imperfections 1)Group of answer choicesD) Firms have an incentive to increase leverage to exploit the tax benefits of debt. But with too much debt, they are more likely to risk default and incur financial distress costs.A) The tradeoff theory weighs the costs of debt that result from shielding cash flows from taxes against the benefits from the effects of financial distress associated with leverage.C) According to the tradeoff theory, the total value of a levered firm equals the value of the firm without leverage plus the present value of the tax savings from debt, less the present value of financial distress costs.B) Leverage has costs as well as benefits.

MM Proposition II shows that Blank______.Multiple choice question.the market value of the firm is unaffected by its capital structurethere is no risk involved with leverage when there are no corporate taxesthe cost of equity rises with leverageequity is less expensive than debt

Whenever the cost of capital for an all-equity firm is greater than the cost of debt, the cost of equity Blank______.Multiple choice question.is unaffected by leverageincreases with leveragedecreases with leverage

Which of the following statements is NOT TRUE?Debt is costlier than equity.For the same business the firm can choose between the use of debt capital versus equity capital.Net profit can be substantially higher if debt is usedAll of the above

QUESTION 1Which of the following statements is FALSE?A.Securities firms and investment banks perform only the brokerage function.B.Venture capital firms do not make outright loans.C.The value of assets is the traditional measure of size in the securities brokerage and investment banking industry. D.Investment banks specialize in the raising of debt and equity securities for corporations and governments.E.Securities firms specialize in the trading and brokerage of existing securities.1 points   QUESTION 2AllStarBank has the following balance sheet (in millions):          Assets                                         Liabilities and Equity         Cash                $30            Deposits                                $110         Loans                90            Borrowed funds                       40         Securities         50            Equity                                         20        Total assets    $170            Total liabilities and equity   $170AllStarBank’s largest customer decides to exercise a $15 million loan commitment. How will the new balance sheet appear if AllStar uses the purchased liquidity management liquidity?A.                    Assets                               Liabilities and Equity                                Cash                         $30            Deposits                                $110         Loans                       105            Borrowed funds                       55         Securities                  50             Equity                                        20              Total assets     $185             Total liabilities and equity  $185B.                    Assets                               Liabilities and Equity                                Cash                         $30            Deposits                                $105         Loans                         75            Borrowed funds                       55            Securities                80            Equity                                        25                Total assets     $185           Total liabilities and equity   $185C.                               Assets                               Liabilities and Equity                 Cash                         $15            Deposits                                $110         Loans                       105            Borrowed funds                       55         Securities                   50            Equity                                          5       Total assets            $170            Total liabilities and equity    $170D.                    Assets                               Liabilities and Equity                                Cash                         $30            Deposits                                $110         Loans                         75            Borrowed funds                       55            Securities                80            Equity                                        20                Total assets     $185           Total liabilities and equity   $185E.                               Assets                               Liabilities and Equity                 Cash                         $15            Deposits                                $110         Loans                       105            Borrowed funds                       40         Securities                   50            Equity                                       20       Total assets            $170            Total liabilities and equity    $170