Suppose there are no taxes, no transaction costs, and no costs of financial distress. In such a… 1 answer below »


1. Suppose there are no taxes, no proceeding costs, and no costs of financial harass. In such a earth, are the forthcoming statements penny, counterfeit, or dubious? Teach your answers.

a. If a decided issues equity to recover some of its claim, the compensation of the cherishing shares earn stir accordingly those shares are hither risky.

b. Dispassionate borrowing does not significantly move the likelihood of financial harass or closing. Hence, dispassionate borrowing earn not acception the required repay on equity.

2. a. List the three assumptions that lie astern the Modigliani-Miller supposition. b. Briefly teach the pi of each upon the conclusions of the supposition for the genuine earth.