1. According to M&M Proposition II without taxes, a firm's cost of equity is a function...
1. According to M&M Proposition II without taxes, a firm's cost of equity is a function of the required rate of return on the firm's assets, the firm's debt/equity ratio, and the firm's cost of debt.
True or False
2.
When EBIT is positive, high leverage decreases the returns to shareholders (as measured by ROE).
true or false
3.
All else the same, taxes and bankruptcy claims on the cash flows of the firm will tend to increase with decreases in the debt/equity ratio?
true or false
4.
When EBIT is positive, the effect of financial leverage depends on the company's EBIT, that is, leverage is unfavourable when EBIT is relatively high, and leverage is favourable when EBIT is relatively low.
True or False
true or false
Homework Answers
1.
True
2.
False as high leverage might increase RoE
3.
False..claims decrease
4.
False..leverage is favorable when EBIT is high and unfavorable when
EBIT is low
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1. According to M&M Proposition II without taxes, a firm's cost of equity is a function...
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