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  3. 1. mm's proposition i under no taxes implies that

1. MM's proposition I under no taxes implies that an issue of debt increases expected...

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Finance

1. MM's proposition I under no taxes implies that an issue of debt increases expected earnings per share and leads to an offsetting fall in the price-earnings ratio because the stock price should remain the same.

True

False

2. Moderate borrowing doesn't significantly affect the probability of financial distress or bankruptcy. Consequently moderate borrowing won't increase the expected rate of return demanded by stockholders (rSL).

True

False

3. When a firm borrows, lenders in effect acquire the company and the shareholders receive an option to buy it back for the face value of the debt.

True

False

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