D Question 2 If a firm borrows more (i.e. uses more debt), then the expected rate...

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D Question 2 If a firm borrows more (i.e. uses more debt), then the expected rate of return on shareholders' investments increases. Which of these statements would you agree with? Shareholders are neither better off nor worse off because the increase in expected return is offset by the higher risk to their investment Shareholders are better off because even if firm value does not change, equity returns are higher (MM Prop II) O Shareholders are worse off because the tax shield benefit of debt accrues to the firm, not equity holders Previous 5 pts Next D Question 2 If a firm borrows more (i.e. uses more debt), then the expected rate of return on shareholders' investments increases. Which of these statements would you agree with? Shareholders are neither better off nor worse off because the increase in expected return is offset by the higher risk to their investment Shareholders are better off because even if firm value does not change, equity returns are higher (MM Prop II) O Shareholders are worse off because the tax shield benefit of debt accrues to the firm, not equity holders Previous 5 pts Next