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A firm that has no debt has a market value of 100 million

Question: A firm that has no debt has a market value of $100 million and a cost of equity of 11%. In the Miller-Modigliani world,

a. What happens to the value of the firm as the leverage is changed? (Assume no taxes)

b. What happens to the cost of capital as the leverage is changed? (Assume no taxes)

c. How would your answers to (a) and (b) change if there are taxes?

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Finance Basics: A firm that has no debt has a market value of 100 million

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