Question: Modigliani and Miller followed up their initial work assuming no taxes with a new model that incorporated a world with corporate taxes but no bankruptcy

Modigliani and Miller followed up their initial work assuming no taxes with a new model that incorporated a world with corporate taxes but no bankruptcy costs. Which of the statements below is FALSE regarding this new model?

A. The new Proposition I with taxes states: All-debt financing is optimal.

B. The value of levered firm is greater than the value of unlevered firm by the present value of interest tax shields.

C. The more debt sold, the greater the tax shield and the smaller the government's share of the firm.

D. The firm must be indifferent beween all-equity and all-debt capital structures.

E. The new Proposition II with taxes states: The WACC of the firm falls as more debt is added.

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