I have some finance conceptual questions needing for help... Really appreciate i

Question

I have some finance conceptual questions needing for help... Really appreciate if can help

1.True or false? MM's leverage irrelevance proposition says that...
a. The cost of equity increases with financial leverage only when the risk of financial distress is high.
b. As financial leverage increases, the value of the firm increases by just enough to affect the additional financial risk absorbed by equity.
c. The value of the firm does not depend on the fraction of debt versus equity financing.
d. If the firm pays no taxes, the weighted-average cost of capital does not depend on the debt ratio.

D.False, False, True, True

2.A capital structure that maximizes share prices will at the same time

E.do both a) and b) above

3.If the value of a levered firm is $5 million, what is the value of the same firm with all-equity financing?

4.A company planning to pay a cash dividend in excess of the regular dividend does not want investors to believe that such an extra dividend will be repeated. What will the firm likely call this extra dividend?

D.False, False, True, True

Explanation / Answer

1>C.False, False, True, False.

2>C.minimize the weighted-average cost of capital

3>C.$5 million

4>D.a cash-liquidating dividend

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