If investors have homogeneous expectations, the market is efficient, and there are no taxes, no transactions costs, and no bankruptcy costs, the Modigliani and Miller Proposition I states that:
a. bankruptcy risk rises with more leverage.
b. managers cannot change the value of the company by using more or less debt.
c. managers cannot increase the value of the company by employing tax saving strategies.
According to Modigliani and Miller’s Proposition II without taxes:
a. the capital structure decision has no effect on the cost of equity.
b. investment and the capital structure decisions are interdependent.
c. the cost of equity increases as the use of debt in the capital structure increases.