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$5$ Multiple Choice $1$ point

Which of the following is NOT a limitation of Modigliani and Miller's original capital structure theory with corporate tax?

It ignores bankruptcy and financial distress costs

It assumes that firms and investors can borrow at the same risk$-$free rate

It does not account for agency costs related to debt and equity financing, such as debt overhang or leverage rachet

It assumes that capital markets are imperfect and subject to transaction costs