Question 1
With corporate taxes but no personal taxes, and without financial distress, what happens?
◦
The optimal amount of leverage for a firm is 100% debt.
◦
Equity costs increase with less debt financing.
◦
An unlevered firm cannot benefit from increased leverage.
◦
Debt costs increase with financial leverage.
Question 2
A firm’s financial policy has no effect on its equity beta.
◦ true
◦ false