Question 1
If a firm utilizes debt financing, an X% decline in earnings before interest and taxes (EBIT) will result in a decline in earnings per share that is larger than X.
◦ true
◦ false
Question 2
If Miller and Modigliani had incorporated the costs of bankruptcy into their model, it is very likely that they would have concluded that 100% debt financing is optimal.
◦ true
◦ false