Problem

Imagine a firm that is expected to produce a level stream of operating profits. As leverag...

Imagine a firm that is expected to produce a level stream of operating profits. As leverage is increased, what happens to:

a.   The ratio of the market value of the equity to income after interest?


b.   The ratio of the market value of the firm to income before interest if (i) MM are right and (ii) the traditionalists are right?

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Solutions For Problems in Chapter 17