The MM irrelevance capital structure theory proved that a firm’s value is unaffected by its capital structure. But their study was based on all of the following strong assumptions excluding:     a. There are no brokerage costs.     b. There are no corporate taxes and personal taxes.     c. There are bankruptcy costs and agency costs.     d. There is no asymmetric information problem, and all investors can borrow at the same rate as corporations.

The facts (1) that no explicit interest is paid on accruals and (2) that the firm can control the level of these accounts at will makes them an attractive source of funding to meet working capital needs. True False

The following are the assumptions of the Modigliani and Miller approach, EXCEPT A. Investors think logicallyB. Dividends are fully declaredC. Capital Markets are PerfectD. No corporate taxes exist

A common feature of an LBO structure is a. the minimal use of debt financing. b. a cash sweep, which is a covenant requiring all excess cash be used to retire debt.c. projected rates of return that explicitly and precisely account for the risks associated with these investments.d. its limited use in only providing seed capital to start-up firms.e. none of the above.

1. Assume that capital markets are perfect: there are no transactions costs or taxes, no bankruptcy costs, individuals can borrow and lend at the same rate as corporations can, and all agents in the economy have the same information. Let us compare two corporations that are identical except that one is all equity financed and the other is part equity and part debt financed. Denote the value of the unlevered (all equity) firm by VU and the value of the levered firm by VL. Assume that • Vu = $20,000 • Interest rate on the firm's debt is .10 • The firms generate identical net revenues of $2000 in good times $500 in bad times • Levered firm has $5,000 of debt A. Compute the cash flows accruing to an investor who borrows on her personal account an amount equal to one percent of the debt of the levered firm and purchases one percent of the unlevered firm. B. Next compute the cash flows of an investor who purchases one percent of the equity of the levered firm. C. Using your results in parts…

Modigliani and Miller suggest that, under certain assumptions, financing decisions do not matter in that they do not affect the value of the firm. They define when these assumptions hold as perfect markets. Which of the following are assumptions that they claim must hold for financing decisions to be irrelevant?  Group of answer choices There are no taxes There are no transaction costs The firm has a fixed investment policy The sun must rise in the North and set in the South

True of False? Contributed capital decreases when the company has a net loss. If your answer is “False”, then explain (in one sentence) why the statement is false.