M & M Proposition I with No Tax Supports the Argument

question 60

Multiple Choice

M & M Proposition I with no tax supports the argument that:

• A)business risk determines the return on assets.
• B)the cost of equity rises as leverage rises.
• C)the debt-equity ratio of a firm is completely irrelevant.
• D)a firm should borrow money to the point where the tax benefit from debt is equal to the cost of the increased probability of financial distress.
• E)homemade leverage is irrelevant.