1. In the absence of taxes, MM argues that:
the cost of equity decreases as the debt-equity ratio increases.
the value of a levered firm exceeds the value of the unlevered firm.
no one capital structure for a firm is superior to any other capital structure for that firm.
homemade leverage is insufficient to offset a firm's use of leverage.
the cost of equity for a levered firm is equal to the firm's unlevered WACC.
2. MM Proposition I with no tax supports the argument that:
the cost of equity rises as leverage rises.
it is completely irrelevant how a firm arranges its finances.
financial risk is determined by the debt-equity ratio.
a firm should borrow money up to the point where the cost of debt equals the cost of equity.
business risk determines the return on assets.